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Simar Kaur

28 February 2023

Explain the different types of capital that startups raise.

There are many different ways that startups receive funding to launch and scale
their business. As good as a product or service may be, startup founders know they
need financial support to scale their ideas. Many startups look to traditional types
of startup capital, known as series funding. Series startups usually progress through
these stages:

Series Funding
• Pre-seed funding
• Seed funding
• Series A funding
• Series B funding
• Series C funding
• Series D+ funding
There are also non-series funding sources. These usually supplement series startup
financing.

Pre-seed Funding
Pre-seed startup capital is the first round of funding for many startups. During this
stage, founders are usually still spearheading most efforts at the startup. Founders in
the pre-seed stage often rely on “bootstrapping,” or gathering funds from friends and
family rather than more traditional funding sources. Pre-seed funding covers the
expenses for launching the seed startup.

Seed Funding
Seed startup capital helps fund market research and product development. During
this stage, investors are mostly friends, family, and sometimes venture capitalists.
Seed startups raise a median of $1 million. The amount of funds a startup needs
during this stage varies depending on the industry, product, or service.

Series A
Founders look into Series A startup financing after their product gains a reliable user
base and product-market fit. Typically, Series A startup capital supports expanding
the startup’s product or target market. With Series A, founders focus on using these
funds to maximize the ROI for themselves and their investors.
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Series B Funding
Startups in the Series B phase have a reliable user base and are usually performing
well. Series B funds help startups expand to meet rapidly growing consumer
demand. In this phase a startup is less risky, but it’s still important to focus on scaling
sustainably.

These funds usually cover:

• Hiring industry leaders

• Expanding advertising efforts

• Growing the sales team

• Innovating proprietary technology

Most startups in Series B will turn to venture capitalists because they need a large
amount of startup capital to achieve these goals.

Series C funding
Series C funding is usually for expanding horizontally, which includes:

• Acquiring other businesses

• Developing new products

• Expanding into new industries

Investors expect a large ROI from Series C startups that’s not possible in other
startup series stages. Investing at this stage is the least risky, as these businesses
have a history of growth and generating revenue.

Series D+ funding
While some startups expand to Series D or E, these cases are exceedingly rare. If a
startup reaches Series D, this is usually due to a down round — meaning they didn’t
turn as much of a profit as they’d hoped in Series C. If a startup moves to Series E,
this is generally an alternative to going public.
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Startup capital resources

As startups progress from Series A to C, there are different sources from which they
can secure capital. The most common sources are:

• Venture capitalists

• Incubators and accelerators

• Angel investors

• Small business loans

Works cited

1.https://www.hubspot.com/startups/types-of-startup-capital

2. https://www.startups.com/library/expert-advice/5-types-startup-funding

3. https://razorpay.com/blog/business-banking/all-about-startup-funding/