Venture capital (VC) plays a big role in enabling promising entrepreneurs, many with little or no operating track record, to access funding and turn their ideas into viable businesses. This form of financing usually unfolds through a structured sequence of investment rounds, beginning with pre-seed and seed funding, followed by Series A, B, C and, in some cases, Series D rounds. Each stage reflects a company’s evolving maturity, growth prospects and the level of risk investors are willing to take.
Venture capital firms raise pooled funds from multiple investors and deploy this capital into startups with strong growth potential, usually in return for equity or an ownership stake in the business.
Pre-Seed: The Very First Step
The earliest phase of financing a new company occurs so early that it is often not formally counted as part of the standard funding rounds. Commonly referred to as pre-seed funding, this stage marks the point at which founders begin setting up operations and turning an idea into something tangible. Funding at this stage typically comes from the founders themselves, along with close friends, family members and early supporters.
The duration of the pre-seed stage can vary widely, depending on the nature of the business and the initial costs involved in developing the idea. In many cases, investments made at this stage are informal and may not involve an exchange of equity, reflecting the high level of uncertainty and trust involved.
Seed Stage: First Formal Outside Capital
Seed funding marks the first formal stage of equity financing for a startup and often represents the earliest external capital raised by a business. While many companies progress beyond this stage, some remain at seed funding and do not advance to later rounds such as Series A.
At this stage, seed capital is used to support a company’s initial development efforts, including market research, product design and early testing. It enables founders to refine their offering, identify their target audience and assess the product as market fit. Seed funding is also commonly used to build and support the founding team responsible for executing these early objectives.
Series A: Growth Begins
The first funding round following the seed stage is known as Series A. The name originates from the class of preferred shares typically issued to investors during this phase. At this stage, startups are expected to present a clear and credible plan for developing a business model capable of delivering sustainable, long-term profitability.
In this stage, investors begin to examine tangible data to assess what the company has achieved with earlier funding. While this may not yet translate into meaningful revenue, investors expect to see progress in key performance metrics and a credible indication that the business has the potential to become a scalable and profitable venture.
Capital raised during this round is generally used to refine and optimise what has already been built and learned. The focus is on strengthening the business model, improving operational efficiency and preparing the company for meaningful scale.
Series A investors are usually venture capital firms or high-net-worth angel investors. When a Series A follows a seed round, prospective investors closely evaluate how the initial capital was deployed and whether it generated the expected outcomes.
Series B: Scaling And Expansion
Series B funding’s focus is on taking a business beyond the development phase and into a stage of accelerated growth. Here, investors support startups in expanding their market reach, scaling operations and meeting rising customer demand.
By the time a company enters a Series B round, it is generally well established, and its valuation reflects a more mature business with proven traction. While the fundraising process and key participants may resemble those seen in Series A, there are notable differences. Series B rounds are often led by existing investors, including a prominent anchor investor, but they also tend to attract a new group of venture capital firms that specialise in later-stage investments.
Series C: Building Market Leadership
Series C funding is pursued by companies that have shown solid metrics and are looking to expand further, often into big markets, through acquisitions, or with plans for strategic positioning before an exit like an IPO. Investors back these companies expecting substantial returns, as growth and risk are more predictable.
For example, a vegetarian food startup that has proven success in one country may use Series C funding to expand into another geography or acquire a competitor with a complementary market presence. As risk decreases, new investors, which includes hedge funds, private equity firms, investment banks and secondary market groups, join alongside earlier backers, committing significant capital to support large-scale growth.
Later Rounds: D, E And Beyond
Some startups continue funding into Series D, E, and beyond.
Series D funding usually happens if a company didn’t raise enough in Series C or failed to meet its targets. It often comes at a lower valuation, which can hurt investor confidence. While it can be essential for the company’s survival, it may devalue the business and affect future fundraising.
Series E is rare and only occurs if Series D funding still isn’t enough. Companies at this stage are usually struggling to stay private and operational, making Series E a sign of ongoing challenges.
Series F funding is even less common and usually reserved for capital-intensive businesses many years into their lifecycle. It supports the next stage of growth, such as preparing for an IPO, acquisition, or major expansion.
Series G rounds are extremely rare and are typically used for companies continuing to scale, expand into new markets, or get ready for an IPO or acquisition. Like Series E and F, these rounds signal mature companies seeking strategic growth.
Overall, understanding venture capital funding stages is crucial for both founders and investors alike. Each phase, from pre-seed through Series C and beyond, serves a distinct purpose in the growth journey.