top of page

Navigating Startup Funding Rounds, from Early Stage to Exit

Updated: Jun 4

Every entrepreneur needs one thing to build their startup from idea to successful exit: money.


Navigating Startup Funding Rounds

Without a growth capital roadmap, founders on the startup journey face twists, turns, detours, and even a potential dead-end. What many don’t anticipate is the toll that repeated fundraising rounds can take on them and the business.


Don’t end up like so many founders who wish they had known. Figure out whether venture capital is the appropriate funding for your startup right now. If you’re considering raising equity at some point, you can skip ahead to learn what defines each startup funding round and how they work.


Is Raising Venture Capital Right for Your Startup?

It’s not unusual for a SaaS startup to bootstrap its way to its Series A, generating revenue out of the gate and fueling early-stage growth that attracts its first round of venture capital (VC) funding. One startup might fund slow and steady growth to a profitable exit entirely with non-dilutive capital, while another follows a hyper-growth trajectory, pursuing equity funding from Seed to IPO.


What’s the best fundraising strategy for your startup? Take the advice of a successful founder who’s seen it all from every aspect of the process.


Dave Hersh, founding CEO of Jive Software, bootstrapped for five years before raising $15 million from Sequoia Capital as he built a healthy, profitable, IPO-ready business. Since then, Hersh has been a VC, worked in private equity (PE), and served independently on company boards.


Too often, he says, founders erroneously chase venture capital as if raising money is the goal.


“They have this mindset that we have to get to these metrics so we can raise a B-round, then once we do these things, we can raise a C-round,” Hersh says.


The right funding strategy starts with one simple question: What does my company need?


In an episode of Lighter Capital’s Bootstrapped podcast, Hersh discussed his new book, Reignition: Transforming Stuck Startups in Breakout Winners, and shared his fundraising ethos.


Hersh says, “If you’re considering raising and you’re early in the process looking to grow, put your strategy in the driver’s seat, then find the funding that can support that strategy.”


Hersh has spent a lot of time helping struggling entrepreneurs “get unstuck” after running the VC gauntlet. Though many factors and decisions can send a startup into a death spiral, he also sees inherent problems in VC that can strip founders of their dreams.


 
Jive's founding CEO Dave Hersh explains why he's "anti-too-much-VC"  on this episode of Bootstrapped: The Lighter Side
Jive's founding CEO Dave Hersh explains why he's "anti-too-much-VC"

“I think there is a system that gives rise to a certain type of thinking that is clearly problematic, and it doesn’t have to be that way. I’m not anti-VC by any means. I’m anti-too-much-VC. And I’m against people following VC on this lemming-like path to building a company.”

— Dave Hersh




 

Mo’ VC Money, Mo’ Problems

In the Bootstrapped podcast, Hersh highlighted three common problems founders face after they raise venture rounds.


1. Pressure to grow

Everything changes when you’ve been pursuing growth and investors start forcing growth. You move faster, hire faster, and spend a lot more money to meet aggressive targets. If you raise VC before you really understand what’s going on in the market and how you should play, your business won’t be ready to grow at the pace investors expect. It’s a recipe for failure, not success.


2. Investor control

Be prepared to follow your investors’ playbook and advice — sometimes helpful, other times not. Either way, they have the clout. Some founders even end up losing their company entirely if they don’t minimize share dilution.


3. Odds stacked against you

Unfortunately, a lot of entrepreneurs don’t realize that VCs make their money on only about 10% of their investments — and that the rest fail. That model works fine for VCs, but it’s agonizing for the dedicated entrepreneurs and employees when their business doesn’t survive.



Reflecting on his own experiences at Jive, Hersh says, “The periods of disciplined austerity were our most productive. The periods when we raised and spent a bunch of money were when things went sideways.”


Raising venture capital isn’t bad. It’s useful for building and growing a startup, but it’s not right for all nascent enterprises — and determining when to raise it requires careful consideration. Armed with the requisite knowledge to make an informed decision, you can set out to raise a VC round when it’s most advantageous for your business and your goals.


Image featuring quote from Dave Hersh in Lighter Capital's Bootstrapped Podcast: “Walk, walk, walk, walk, walk before you sprint. I think the longer you can operate in a leaner, more disciplined way, the more likely you are to become a billion-dollar company.” — Dave Hersh

Below, we define each startup funding round — from Pre-Seed to Series D and beyond — and explain how each is typically used at various growth stages.


How Startup Funding Rounds Work

Graphic showing how startup funding rounds work, from Pre-Seed to Series C

Pre-Seed Funding

  • Growth Stage: Ideation

  • Funding Amount: $50K to $500K


The earliest startup round is Pre-Seed funding, which is usually raised from friends and family or from non-institutional investors from founders’ personal networks. These are smaller amounts of money that help entrepreneurs get an idea into production. Though it’s common for some founders to self-fund or just start building themselves at this stage, others join incubators or accelerators that provide capital and expertise to help early-stage entrepreneurs.



Seed Round

  • Growth Stage: Ideation/Development

  • Funding Amount: $500K to $2M


With the emergence of the Pre-Seed round, Seed round investments have expanded in scope to support startups through their development stage. These higher-risk investments help unproven businesses test their ideas in the market and begin validating product-market fit. Angel investors are the most common investors in a Seed round. Startups might use their Seed money to make their first key hires, expand marketing efforts, and acquire more customers.



Series A

  • Growth Stage: Development

  • Funding Amount: $2M to $15M


Fewer than 10% of seed-funded companies proceed to a Series A round. With capital raises reaching $10 million or more, investors are looking for companies with great ideas and a strong strategy for turning those ideas into a money-making business. Startup leaders must show healthy growth and prove demand in the market. It's common for a few venture capital firms to lead a Series A round; a single investor may also serve as an "anchor." Often, securing one investor can make it easier for startups to attract additional investors for the full series A raise.



Series B

  • Growth Stage: Growth

  • Funding Amount: $7M to $10M+


If your business survives the “make or break” stage, consider raising a Series B. Startups at this level have found their product-market fit and are poised to expand the business on a larger scale. Series B funding is used to meet market demand, and that typically requires more substantial capital. The size of a Series B raise, however, depends on how the business plans to use the cash and how long the money has to last. Series B funding is often led by many investors from the earlier round, though new VCs specializing in later-stage growth might join in on a Series B.


Series C

  • Growth Stage: Scaling

  • Funding Amount: $30M to $100M


A Series C round can help successful startups scale up by developing new products, expanding into new markets, or even acquiring other companies. For companies with an average of 300 employees, $15 million to $50 million in ARR, and a valuation over $100 million, Series C funding is usually much larger than previous rounds (average of $50 million). Typically, this round marks the end of venture capital fundraising for most startups as founders prepare for an exit via private equity, an acquisition, or an initial public offering (IPO).


Series D and beyond

  • Growth Stage: Pre-IPO or exit

  • Funding Amount: Varies


These are special rounds of funding, because most startups will hold an IPO or pursue another exit strategy after raising their Series C. In some cases, a Series D fundraise is needed when a company can’t meet expectations with the Series C capital. In that case, the startup’s valuation decreases, so it’s best to avoid a Series D if it’s based on negative results. A Series D round can also mean a company has a great opportunity to expand further and increase its value — it just needs more fuel to get there. Or a company might want to remain private a bit longer, and raising a later stage raise round is advantageous. Funding amounts are highly variable at this stage, because so few companies reach them and their motives for raising capital can vary widely.


 

Preview of Lighter Capital's Startup Funding Playbook

Find the right funding strategy for your startup

Most entrepreneurs see venture capital as the holy grail of funding solutions, but fewer than 0.05% of U.S. startups ever raise a VC round.


There are other startup fundraising options, and some might be more advantageous for your business. This guide will help you decide what kind of capital to raise, when to raise it, and what you need to get it.



Comments


bottom of page