Startup Funding Stages Explained for Potential Employees

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March 3, 2021
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Starting a new company usually requires some sort of initial funding or capital investment. For startup companies that aspire to be high growth, this financing most often comes from private “angel” investors or Venture Capital firms. These investors specialize in funding risky, but potentially promising companies for a significant return on their investment. 

In the startup investing world, high-growth companies commonly raise several successive rounds of investment as they grow the business from an initial untested product or service into a proven, mature company that generates substantial revenue. These rounds of investment or “series” funding stages follow certain patterns, which have developed over the years. The typical transactions of the different funding stages of startups are constantly changing, and can vary by industry, region, and other factors. Still, there are many similarities and patterns in the typical funding stages. Knowing the general nature and distinctions of each round can help you understand the focus, priorities, and risk of startups based on where they are in the funding journey.

Startup investors fund entrepreneurs and take an ownership percentage of the new companies because they hope to gain a significant return on the investment. Even if a startup is profitable, entrepreneurs and investors will increase the capital funding in order to grow and expand faster, and ultimately have a larger return. This return or “liquidity event” will usually come in the form of the startup being acquired, or the startup having an IPO or initial public offering when it transitions from a private company to a publicly traded company.

The series of funding stages typically includes Pre-seed or Seed, Series A, Series B, Series C, Series D, and sometimes Series E, and finally an IPO. The “Series” in the name refers to the class of preferred stock. Some startups do not need to raise Series D or E rounds in route to an IPO. As a rough average, successful startups typically take 10 years to go from launch to IPO and take around 2 years between each funding round.   

Each time the company raises another round of funding there is a new valuation of the company where the total value of the company is determined. For most successful startups, each funding round increases the total value of the company, increases the amount invested compared with the previous round, increases the total number of employees, and decreases the risk associated with the company. Of course, most startups will not make it all the way to an IPO or successful acquisition, but as they mature and make it to each additional round, the chances of success generally increase. 


Sometimes startup founders will raise a Pre-Seed round from their own savings, friends and family, or early stage angel investors to fund the initial launch and setup of the business. The amount raised typically is less than $500,000. There are exceptions depending on industry and resources, but it’s not common for companies at this stage to hire more than one or two full-time employees, if any. This funding round would be used to test out the founders’ hypothesis and position the company to raise a traditional seed round. 


The Seed round is the most common way for companies to raise their first outside investment. Seed round investments often come from a mix of family & friends, angel investors, venture capital firms that specialize in early stage startups, and even other sources like crowdfunding. The name “Seed” is of course a reference to the seed of a plant, and investors and entrepreneurs hope that with this initial seed of capital, the company can emerge and grow. 

Seed funding amounts can vary significantly, but in 2020 the average amount raised in the US for a seed round was $2 Million, with the typical range being $1 Million to $5 Million. The typical pre-money valuation for a company raising a seed round is $7 Million, with $4.5 Million to $11 Million being common.

See recent news articles about companies announcing their Seed Funding Round

Series A

Again, not all startups who raise a seed round go on to raise a Series A, but after raising a seed round, the average time until a startup raises a Series A is 22 months. Series A fundraising usually comes from Venture Capital with some Angel investors being common as well. To raise a Series A Round, a startup usually needs to show that they have a viable business model through some sort of meaningful revenue or traction from the market. The funds raised for the Series A round would grow the company from the initial team and offering into a fully fledged business operation.

Series A rounds have grown in size substantially over the past decade, with the average Series A round growing from $4.9 Million in 2010 to $20.8 Million in 2021 with a median round of $8.9 Million. For context, there were about 650 Series A deals in the U.S. in 2020. In the US in 2020, Series A Startups had a median pre-money valuation of $23 million.

See recent news articles about companies announcing their Series A Funding Round

Series B

The average time from a startup raising a Series A to raising a Series B is 24 months. Series B fundraising often comes from the same Series A investors, along with some VC firms that focus more on more mature or late-stage startups. The Series B round is really about growth and scale. To reach a successful Series B round a startup has built out their team, proven their product or service, and reached significant milestones. The Series B funds will then be used to expand operations, markets, and the overall customer base. Companies also use the Series B round to build teams in departments that will grow with the increase in customer demand like support, advertising, business development & sales

The average Series B round in the US in 2020 was $33 Million. Most Series B Startups had a pre-money valuation ranging between $30 Million and $60 Million with the average being $58.3 Million.

See recent news articles about companies announcing their Series B Funding Round

Series C

The average time from a startup raising a Series B to a Series C is 27 months. Series C fundraising comes from previous investors as well as later stage investors like Private Equity Firms, Hedge Funds, and Investment Bankers if the company is potentially closer to an IPO or acquisition. Companies that reach Series C are usually well established and known in their industry. They will use the funds raised to expand into new geographic markets, acquire other companies, and develop completely new product lines. For some successful startups, the Series C is the last round they will raise before an IPO and the funds will be used to push and prepare the company for the IPO process. 

The average Series C round in the US in 2020 was $50 Million. Pre-money valuation often ranges between $100 Million and $120 Million, with some outlier “Unicorn” companies reaching $1 Billion or higher. 

See recent news articles about companies announcing their Series C Funding Round

Series D, E, F

Funding rounds beyond a Series C are less common and more complicated than previous rounds, and therefore less homogenous in terms of size and purpose. Sometimes companies raise Series D or E rounds because they need another boost of capital to expand and prepare for an IPO. Sometimes companies raise subsequent rounds in order to remain private longer before an IPO. And sometimes a company will raise a Post C round because they failed to achieve the goals and milestones they set in the Series C round. In this last case the valuation of the subsequent round may actually be the same or lower than the previous round. This scenario is referred to as a “down round”, and though some companies go on to success after a down round, it is not an ideal position. 

See recent news articles about companies announcing their Series D Funding Round


An Initial Public Offering (IPO) is when a private company “goes public” and shares in the company are listed and tradeable on a public stock exchange. IPOs allow founders, investors and other shareholders like early employees to sell their shares (with certain regulations) and often make a significant return on their investment. The process of going public usually has significant accounting, legal, and marketing costs and preparations, but it allows shareholders to have a liquidity event, and often allows the company to raise additional capital for continued growth. Ideally an IPO is a successful transition and helps companies increase awareness, reputation and overall market value, but sometimes IPOs go poorly and the total value of the company decreases.

See recent news articles about companies having an IPO

Frequently Asked Questions

What should potential employees consider about equity during the different startup funding stages?

Potential employees should consider the risk-reward balance of equity at each stage. In early stages like pre-seed and seed, equity offers can be larger but riskier, as the company's future is uncertain. As the startup progresses to Series A and beyond, equity offers may become smaller but potentially more valuable, as the company's valuation increases. It's important to assess the company's growth potential, market position, and your own risk tolerance when evaluating equity as part of a job offer.

How does the role and expectations of an employee evolve as a startup moves from early funding stages to an IPO?

In early stages, employees are often expected to wear multiple hats and contribute to a wide range of tasks, with a focus on innovation and rapid iteration. As the startup grows and secures more funding, roles become more specialized, processes are formalized, and the focus shifts to scaling the business. By the time a startup reaches the IPO stage, roles are typically well-defined, and there's an emphasis on maintaining growth and meeting shareholder expectations.

What are the potential risks and benefits for employees joining a startup at Series C funding stage or later?

Joining a startup at Series C or later can offer more stability and clearer career progression paths compared to earlier stages. The risks are generally lower as the company has proven its business model and has significant investment. However, the equity offered may be less generous and have a lower growth potential compared to joining at an earlier stage. Benefits include the opportunity to be part of a maturing company poised for significant growth or an IPO, often with a more established company culture and resources.

Dave Fano

Founder and CEO of Teal, Dave is a serial entrepreneur with 20+ years of experience building products & services to help people leverage technology and achieve more with less.

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