June 9, 2020

The “Alphabet” of Business Funding

Funding is the lifeblood of a business. For without a sustainable financial foundation, one’s likelihood of entrepreneurial success is greatly diminished.

Seed funding is just one of a number of financial pipelines to tap into. In brief, it’s a form of securities offering where an investor pours capital in a startup in return for an equity stake in the company.

The goal? To provide new and emerging entrepreneurial ventures with capital for things like management team salaries, R&D, proof-of-concept, prototype development, and beta testing, among others.

Series A, Series B, and Series C represents the compendium of business funding rounds. Taken in alphabetical order, here is a brief overview of each.

Series A

Series A is the first round of institutional financing for a business and is often directed by one or more venture investors. Valuation in this round reflects advancements achieved with seed capital, management team consultation and other evaluative benchmarks. Typically, Series A investors will purchase a 50% ownership stake a the company.

Success at this funding stage allows a company to proceed forward along a number of different fronts, including development, talent acquisition, business development initiatives and other activities valuable to their business expansion.

Series B

Series B is the second round of funding for businesses. It typically takes place when the company has reached certain milestones and is beyond the initial startup stage. Funding at this financing round can occur in various ways including private equity, venture capital, crowdfunding and credit investments. Financing acquired may be directed toward a number of different aims including operational enhancement, product development, revenue systems, as well as value creation for the next funding stage.

Series B is the stage where publicly traded companies are often seeking to boost their number of shares available on the open market. It’s here where equity investors typically prefer convertible preferred stock to common stock due to the dividend accrual and anti-dilution features, that may be unavailable with common stock.

Series C

Series C is a later-stage financing mechanism that businesses often employ to strengthen their balance sheet, acquire operating capital, finance an acquisition, launch new products/services, or prepare the company for an IPO or acquisition exit. The company often has a solid track record at this juncture of its business trajectory providing outside investors with multiple levels of reassurance to justify a higher valuation.