Series Funding: A, B, and C

What Is Series A, B, and C Funding?

Series A, B, and C are funding rounds that generally follow "seed funding" and "angel investing," providing outside investors the opportunity to invest cash in a growing company in exchange for equity or partial ownership. Series A, B, and C funding rounds are each separate fund-raising occurrences. The terms come from the series of stock being issued by the capital-seeking company.

KEY TAKEAWAYS

• Many companies must complete several fundraising rounds before the initial public offering (IPO) stage.
• These fundraising rounds allow investors to invest money into a growing company in exchange for equity/ownership.
• The initial investment—also known as seed funding—is followed by various rounds, known as Series A, B, and C.
• A new valuation is done at the time of each funding round.
• Various factors, including market size, company potential, current revenues, and management determine valuations.

How Series A, B, and C Funding Rounds Work

Before exploring how a round of funding works, it's necessary to identify the different participants. First, there are the individuals hoping to gain funding for a new business. Businesses tend to advance through funding rounds; it's common for a company to begin with a seed round and continue with A, B, and C funding rounds.

On the other side are potential investors. While investors wish for businesses to succeed because they support entrepreneurship and believe in the aims and causes of those businesses, they also hope to gain something back from their investment.

For this reason, nearly all investments made during one or another stage of developmental funding is arranged such that the investor or investing company retains partial ownership of the company they are funding. If the company grows and earns a profit, the investor will be rewarded commensurate with the investment made.

What Is the Funding Valuation?

Before any round of funding begins, analysts undertake a valuation of the company in question. Valuations are derived from many factors, including management, growth expectation, projections, capital structure, market size, and risk.

Investors each have their own method for valuating a business, but many use some of the same factors:

• Market size: The size of the market the business is in, in dollar value
• Market share: How much of the market the business makes up, like 0.10% of the overall market
• Revenue: An estimate of how much the company made and will make. This is market size multiplied by market share.