A funding round is a monetary investment raised for a company or organization, usually funded by multiple individuals or entities. Funding rounds can be used for business acquisitions, expansions, operation expenses, and more.
Funding round amounts and stages vary widely depending on the company's size, previous funding rounds, the company's value, and more. Not all companies are awarded the same types of funding rounds, and some only ever receive just one or two. Funding round names are described according to the types of investors, the relative amount of the investment, and the stage of development the funded company is in. Funding rounds typically involve the investor acquiring equity or shared ownership in the company.
The following are common funding round types:
- Pre-seed rounds are used to fund startups in their very first stages. Pre-seed funding rounds are often unreported because they are usually funded by the company founders or their personal acquaintances; this also means equity is not usually exchanged at this stage.
- Seed rounds are the first official equity funding stage that are reported. As seed funding is used to help companies establish their businesses, the funding can be used to pay for market research and product development. Seed rounds are sometimes funded by angel investors or venture capital firms. Depending on the company's valuation, seed round amounts can range from tens of thousands to millions of dollars.
- Angel rounds are funded by angel investors. Angel funding rounds are awarded in the early stages of a company, most often in exchange for equity.
- Series A funding rounds occur after the company is better established, such as by reporting consistent revenue or a steady user base. Series A rounds are usually valued in the millions—the median reported funding for a series A round in 2021 was $10 million. At this stage, larger investors are more likely to be involved in funding rounds.
- Series B funding is similar to series A. Once this stage has been reached, the company is typically ready to move past the original development phase and uses the funds to further production or service offerings. These rounds are valued in the tens of millions, with 2021's reported median being $40 million.
- Series C funding is awarded to successful and stable companies with a long track record. Series C funds can again be used to further product development and expand service offerings. As companies are well-established at this stage of funding, series C funds are often used to acquire other companies, which helps the acquirer gain more business.
- Series D and beyond rounds are less common for companies to receive; the ones that do typically have not reached their expected goals with series C funding or are searching for more funding before launching an initial public offering (IPO).
- An IPO is a company's first issuance of public stock. Public stock offerings are a way for companies to generate capital income from a wider audience. To hold an IPO, companies (in the United States) must meet certain requirements per the SEC.
- An initial coin offering (ICO) is when a company releases its own cryptocurrency token that is usually publicly available for purchase. ICOs are a form of crowdfunding.
- Venture capital rounds are high-value investments led by venture capital firms; they can also include angel investors. Venture capital funds are often awarded to new or small businesses that show long-term growth potential.
- Corporate funding rounds are when other companies, not investment firms, make investments in the funded company. These rounds sometimes occur in conjunction with a newly established partnership between companies.
- Crowdfunding involves individual donors donating to a company's development of a new product or project. Common websites for crowdfunding include Kickstarter, GoFundMe, and Indiegogo. Campaign donors are typically called backers and usually receive benefits for donating. Benefits are often listed in tiers, with higher donations netting more benefits like earlier product shipments or access.
- A private equity round is a later-stage funding round awarded by private equity firms or hedge funds. Funding rounds are typically valued upwards of $50 million.
- A convertible note is an advance funding round that a company can raise before it pursues a larger round. The amount of funding from the convertible note is removed from the funding raised in the next round.
- Grants are a type of funding awarded to companies without an exchange of equity taking place. Grants can be awarded by government agencies, as well as investors and other companies.