Series A, B, C & D Funding Rounds Explained

Series A, B, C, and D funding are multiple rounds of venture capital funding. Attractive to startups that either can’t qualify for conventional lending or need substantial capital injections, these funds provide financing from outside investors to help fuel growth and expansion. The purpose of naming the Series A, B, C, and D funding rounds is to rank payments to investors and ensure earlier investors receive preferential treatment. To secure their ownership interest, venture capital firms offer startup funding in exchange for company equity.

When Startups Raise Series A, B, C & D Funding

Series A Funding Round

Series A is the first funding round that angel investors, venture capital firms, and accelerators provide to startups. Series A funding provides the financing for a company to take their product to a mass market and stabilize the company. Most startups are on shaky ground until this round of funding because they are often outgrowing their ability to generate revenue. Business loans aren’t always a viable option as some startups are in a riskier financial position despite having a viable product or service.

Going to market is another reason startups raise a Series A round. At this stage, the startup has already developed a minimum viable product that has been piloted, and it has found that there’s a product or market fit. However, in most cases, its operations are demographically or geographically constrained, and a Series A funding round enables it to reach a wider audience.

Series A Fundraising and Valuation Stats

Series A fundraising and valuation statistics include:

Median 2021 Series A fundraising amount: $10 million, up from $2.7 million in 2012
Median 2021 Series A startup valuations: $34 million, up from $8 million in 2012

According to a KPMG report, while the number of first-time capital raises from venture capital firms has declined, deal sizes have grown larger. This is because the cost of going to market is declining while the availability of private capital for earlier stages of funding is increasing. Angel investors are offering larger funding amounts and more startups are turning to crowdfunding to reach their customers.

Series A Typical Investors

Series A investors include accelerators and venture capital firms, such as:

Venture capital firms and startup accelerators are the primary sources of Series A investments. Startups join incubators and accelerators for initial funding and prototyping. The best startup accelerator programs offer companies an opportunity to pitch investors, which is when most startups connect with their future Series A investors.

Startups that raise subsequent funding rounds use the money to expand their offering, scale the company, and in some cases prepare for an initial public offering (IPO). A Florida International University report shows that 20 months is the average time between funding rounds.

Series B Funding Round

Startups raise a Series B funding round to scale their business and expand distribution channels. At this stage, startups focus on enterprise-level solutions to grow the team, service more customers, and build reporting structures that keep the company on track. This is also the stage when venture capitalists are most valuable because they can offer both funding and advice.

Entrepreneurs consider a Series B funding round the most difficult to raise. The two primary barriers to raising a Series B round are survival and growth. Many startups do well but don’t scale the business with a Series A round, often because of an overestimation of the potential market size. Achieving a high enough valuation is another barrier to raising investment that’s sometimes caused by an overvaluation from the previous funding rounds.

Series B Fundraising and Valuation Stats

Series B fundraising and valuation statistics include:

Average 2021 Series B fundraising amount: $26 million, up from $7 million in 2012
Average 2021 Series B startup valuation: $110 million, up from $21 million in 2012

The dramatic increase in the fundraising amounts and valuations of startups that raise Series B results from larger early rounds in Series A. Another major cause is the increase in the time that previous rounds afford startups to scale. With the growth of startup ecosystems, there are multiple enterprise-level solutions that enable quicker scaling.

Series B Typical Investors

Series B investors include venture capital firms such as:

Venture capital firms are the primary investors in Series B funding as they can offer substantial capital and expertise to help scale the company.

Series C Funding Round

Startups that scale with a Series B round of funding may subsequently raise a Series C round from investors. This round of funding is typically used to scale reach and operations on a national or international level. This is the round in which most of the well-known venture capital firms behind major companies like Facebook and Uber invest.

Series C Fundraising and Valuation Stats

Series C fundraising and valuation statistics include:

Average 2021 Series C fundraising amount: $52 million, up from $11 million in 2012
Average 2021 Series C startup valuation: $300 million, up from $48 million in 2012

Although the average amount that startups raise with Series C funding is higher than the previous funding round, the percentage increase isn’t as large as in previous rounds. Investors receive a smaller amount of equity at this stage because the company is generating sufficient revenue to scale operations and is now preparing for an IPO or acquisition. In both scenarios, overvaluation can hurt all the investors involved, so this round is more conservative.

Series C Typical Investors

Series C investors include venture capital firms such as:

The venture capital firms that invest in startups raising a Series C funding round are more established and command greater name recognition. The primary factors contributing to this are the expertise, leverage, and scale that these investors have. Companies seeking Series C funding can be more selective about investors, require a different set of expertise, and need a large amount of capital.

Series D Funding Rounds

Series D and subsequent fundraising rounds are the least common but also the largest overall. Startups use this round of funding to fuel further expansion and prepare for either acquisition or an IPO. At this stage, startups need capital to operate and grow and the expertise on its team that investment banks and private equity firms can provide.

Series D Fundraising and Valuation Stats

Series D fundraising and valuation statistics include:

Average 2021 Series D fundraising amount: $109 million, up from $16 million in 2012
Average 2021 Series D startup valuation: $1 billion, up from $92 million in 2012

The same factors that increased valuations in previous rounds are at play in the Series D funding round. The average company valuation for those that reached Series D funding was approximately $1 billion. The $1 billion threshold is also known as “unicorn” status for technology companies that have yet to go public.

Series D Typical Investors

Series D investors include investment banks and private equity firms, such as:

The expertise that startups need to take a company public or negotiate the terms of sale differs from those needed to scale operations. Because of this, many startups rely on late-stage venture capital, private equity, and investment banks at this stage of funding. These companies focus on investments that are preparing to exit and are in the best position to help the startup through this process.

Example of Funding Rounds for a Startup

A software developer that offers real estate client management solutions is growing quickly in the New York City market. Their growth is outpacing their revenue, and they hope to avoid turning down customers. To capture more of the market and expand its workforce, the company raises a Series A round of funding from a venture capital firm.

After investing the Series A capital, the company sees growth continuing, finances stabilizing, and more opportunities opening up. At this point, the company is doing well, with a great product, and they notice that their customers need an automated marketing platform to grow their business. They develop a prototype, test it on a few customers, and realize that this solution could potentially grow their revenue and customer base. Using feedback and projections that founders receive from their initial investors, the company then raises another round of funding, Series B.

The Series B round is a great relief for the founders as they can now pursue more customers, hire engineers, and ultimately continue to grow. However, the venture capital firm requires that they achieve a 100% increase in the number of customers to unlock additional funds. To do so, the founders invest part of the funding in a nationwide marketing campaign to grow their business.

The marketing campaign is a success, and they achieve the necessary growth to unlock more funding. However, the scale and infrastructure they require to service these new customers are lacking. The founders raise an additional round of capital, Series C, with a venture capital firm that specializes in scaling software companies. Over the following year, they use the funding and resources of their investors to scale and grow the company.

The investors from all three rounds, employees, and founders are now ready to exit the business and liquidate at least part of their equity. To help them out, the founders enlist a private equity firm that will help them optimize operations, reduce costs, find a buyer, and sell the company. The private equity firm is successful and the company is sold to a major real estate conglomerate at a higher valuation than the previous round of funding.

Bottom Line

Series A, B, C, and D funding rounds are best suited for startups in need of venture capital to achieve scale and reach more customers. Startups don’t always pursue multiple rounds of funding, sometimes because of an inability to scale or because they don’t need additional money. Accelerators, venture capital firms, investment banks, and private equity firms provide these funding rounds to startups.