Startup Funding 101

By Matt Cynamon

Tech startups often go through different life stages, and those stages greatly impact things like compensation, work-life balance, risk, and upside. It’s hard to know exactly what stage a company is in from the outside, but a great way to get an approximation is to look at the company’s fundraising history. Fundraising can feel like an entirely foreign language, but understanding it is essential as you pursue a career in startups.

Not all startups raise money from outside investors, but many do and they often follow a sequential order that looks something like 1) seed round, 2) Series A, 3) Series B, 4) Series C, and so on. While these funding rounds typically correspond with business milestones, they are not always an external indicator of success. Startup investors value high-risk opportunities and expect most of their portfolio to fail while one or two will be so successful that they make a nice return. Those successful startups are often called unicorns.

Stage 1: The Seed Round

The seed round is typically the first round of funding a startup will raise. It usually ranges from $50,000 to $2 million and often comes from angel investors. Angel investors are high-net-worth individuals who use only personal finances to make investments. At this stage, a company is usually just the founders and maybe a handful of employees. The company typically has a promising prototype of its product and will use the money to build it out and start putting it in the hands of customers.

Stage 2: Series A

After a seed round, a startup will typically raise a Series A round, which will range from $2 million to $15 million. This money will typically come from one or more venture capital firms. A venture capital (VC) firm is an investment firm that specializes in startups. At this stage, a company likely has some satisfied customers and will use the money to make improvements and start to market its product more heavily.

Stage 3: Series B

The next round is a Series B, which is usually upwards of $7 million. At this point, the startup will likely have some direction around its business model and will use the funding to try to capture a greater market share. Depending on the type of company, at this stage the organization could potentially be heading toward 100 employees.

Stage 4: Series C, D, E…

The Series C round is typically between $20 million and $100 million. At this point, a startup has a proven product, business model, and marketing engine. The new funding is about doubling the size the company. This is the stage at which most startups become mature. There isn’t really a limit to how many rounds of funding a startup can raise, but each subsequent round is always about growing and getting better.

Stage 5: Selling the Company (aka The Exit)

Why do investors pour all of this money into startups? Their hope is that one day the startup will make a nice return for them, which typically happens in one of two ways.

  • Acquisition: When a startup gets acquired by a larger company, the larger company pays a fixed amount to the acquiree’s shareholders. Examples of this include Facebook acquiring Instagram, Microsoft acquiring Skype, and Google acquiring YouTube.
  • Initial Public Offering (IPO): In this scenario, a company goes from being privately owned to publicly owned. This means that anyone can buy or sell shares on the stock market at any time, and the value of the company is variable. An acquisition or IPO is also when employees who have been given equity can cash out for big paydays.

Meet the Investors

Get to know the types of investors that could help fund your startup.

  • Angel: Angel investors are typically entrepreneurs who have wealth to share. They invest their own capital in startups and businesses they believe in, with their involvement in the company ranging anywhere from sole investment to a portion of ownership.
  • Venture capital: Venture capital firms (VCs) are established groups of investors who generally write the biggest checks. But unlike angel investors, they’re only interested in pitches from more established companies that have a solid business plan to share.
  • Peer-to-peer: Peer-to-peer lending is set up exactly as it sounds: Projects are listed on dedicated websites for funding consideration. If a potential lender sees a business idea that seems promising, the business and lender work out the terms with each other.
  • Personal: Though friends and family may not write checks worth billions, many startups report raising money from personal connections. Personal investors are unique in that they usually lend money based on trust rather than a solid business plan.
  • Banks: Similar to angel investors, VCs, and peer-to-peer lenders, a thorough description of your business is necessary in order to secure a bank loan. Because startups are often unproven, securing funding from a traditional investor like a bank is extremely rare.

Where to Find Startup Funding Information

As you research startup job opportunities, track companies’ growth stages and financials with these resources.

  • TechCrunch is an excellent resource for keeping up with fundraising news. It reports on just about every dollar raised in the startup world.
  • Google Alerts are a great way to keep tabs on a particular company so you can be the first to know whenever a new round of funding comes in.
  • AngelList can help you stay ahead of the curve. It has a directory of all startups looking to raise their first round of funding, and is also an excellent job board.
  • Crunchbase provides financial and other data about companies. Check to see if a startup has enough money to make payroll the next three months.
  • General Assembly workshops and events offer access into top industry pros. Connect with peers and leaders in tech who can share experience, career tips, and insight into trends and funding.

Launch your career in startups.

Learn the ins and outs of the industry with our exclusive guide.