Creating a thriving app startup requires more than just a great idea - it also demands access to funding. In this article, we'll delve into the various stages of startup funding, exploring what sets each round apart and how they can impact your company's growth.

How Does Funding Work?

The funding process for startups involves two key players: founders and investors. Founders seek the necessary funds to bring their app from ideation to reality, while investors provide capital in exchange for equity or partial ownership. This process typically begins with pre-seed funding and continues through series funding and beyond.

What are the Stages of Funding?

Pre-Seed Funding

In this initial stage, startups require a small amount of funding (typically $0-$50,000) to get off the ground. This round usually comes from personal savings, family, friends, or outside angel investors. While not-for-equity investments are common at this stage, it's essential to establish clear agreements and terms.

Seed Funding

After pre-seed funding, startups create their final product for market and commit to a target audience. This stage requires an effective business model and a dedicated entrepreneur (valuation: $50,000-$3 million). With the highest risk for investors, this round is crucial for establishing brand credibility.

Common investors in this stage include friends and family, angel investors, incubators, micro venture capitalists, and crowdfunding sources.

Series A

Once a startup has developed a solid foundation, they're ready for series funding. This critical round (valuation: $3 million to $6 million) allows startups to raise larger sums of capital, sustain growth, and scale their operations.

Series A is particularly important, as over 30% of startups fail without securing external funding after the initial pre-seed and seed stages.

Series B

This stage focuses on scaling (valuation: $6 million to $30 million). Startups have established products, business models, and user bases. This round is essential for those with existing momentum who want to continue growing and expanding.

Series C and Above

Once a startup has reached series C funding (valuation: $30 million to $100 million), it's considered mature. Companies in this stage focus on acquiring capital for large-scale expansion, including acquisitions, new product development, and international market entry.

At this stage, many companies have finished raising funds and are looking to increase their valuation for acquisition or IPO.

Initial Public Offering (IPO)

The pinnacle of funding is the IPO (valuation: $100 million and above). This occurs when a company goes public, selling corporate shares to the general public.

The Bottom Line

While each startup's path may vary, understanding the distinct characteristics of each funding round can help you analyze and decide what each round means for your company's direction and growth.