When startups evolve and go from the Seed stage to Growth stage and finally, to Maturity stage, they often seek external funding to accelerate their growth. Not all startups raise external capital. Some decide to finance their growth only from the revenues they generate through the regular course of business. However, most technology startups do get funded by investors, because it speeds up their plans.
Startups in the Seed stage of their life cycle are still working to align their product with the needs of users (Product-Market Fit) and do not have large sales. Depending on how far they are in developing their product and establishing sales channels, they can get funding from Friends, Family and Fools (FFF), Angels, or from Early stage venture capitalists via Pre-Seed or Seed rounds.
Growth stage startups have already found their Product-Market Fit and their main goal is scaling sales in the user segment that was identified in Seed Stage, as well as searching for new user segments. Often, startups do not have enough resources at this stage to quickly scale sales channels. That’s why startups go to professional investors. e.g. venture capitalists, and raise funding for the development of the company. Such investments are called Series A, B, C and there may be several of such rounds until the company achieves self-sufficiency in financing.
Table: Startup Investment Rounds
| Funding Rounds | Source | Use of proceeds | Remark | Size, USD |
|---|---|---|---|---|
| Seed | Angels/seed stage VC firms/accelerators/qualified investors | Developing product to first sales | Up to 1M | Equity funding |
| Pre-Seed | Startup competitions/grant programs/angels/FFF – friends-family-fools | Incorporation of a company/building a prototype/generating first sales | Non-equity funding | Up to 0.5M |
| Round A | Primarily VC firms/other qualified investors and sometimes angels | Scaling operations | Equity funding; most often the initial funds come from a qualified investor or a second round of financing exceeding $1M | From 1M to 4M |
| Round B and Growth rounds | Primarily VC firms/other qualified investors/very rarely angels | Scaling operations/entry into a new market | Following Round A | From 5M to 10M |
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