Funding rounds explained

Pre-seed, seed, Series A, B and C on one page. What each round is for, who typically invests, and what investors expect of the technology at each stage.

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Software companies that want to grow faster than their sales allow usually raise money by selling a share of the business to investors. They tend to do this in stages, and each stage is called a round. The rounds have names that get used as if everyone knows what they mean. This is a short guide to the common ones and who tends to invest at each.

The rounds

Round What the money is for Who typically invests
Pre-seed Starting the company and building a first version of the product The founders’ own savings, friends and family
Seed Researching the market, developing the product, hiring the first key people Angel investors, angel groups, seed funds, accelerators
Series A Proving the business can make money over the long term Venture capital firms, with one lead investor setting the terms
Series B Growing what already works. Sales, marketing, support, more product Venture capital firms, often the same ones plus a wider group
Series C and beyond New products, new markets, buying other companies, preparing for a sale or stock market listing Later-stage venture capital, private equity, hedge funds, investment banks

The “Series” letters come from the class of shares the company issues at each round. Series A shares, then Series B shares, and so on. Investopedia’s guide to Series A, B and C funding puts a typical Series A at $5 million to $15 million, with one April 2026 US report showing an average of $20 million. Companies raising a Series A were valued at up to $78 million before the new money went in, as of the end of 2025.

Rounds carry on through the alphabet when needed. Stripe announced a Series I of more than $6.5 billion in March 2023, valuing the company at $50 billion. A late letter usually means one of two things. Either the company needs more cash to keep going until it can be sold or listed on a stock exchange, or it’s doing well and wants to keep growing as a private company. Neither is automatically good or bad news.

The people involved

Founders, friends and family fund most pre-seed work. The money is personal, the terms are informal, and the risk is high. Banks won’t lend against an idea with no history behind it, which is why seed capital so often comes from people the founders already know. Plenty of companies never go further than this, and that’s fine. Outside investment suits a minority of software businesses.

Angel investors are wealthy individuals investing their own money, usually early and often alone. Many are former founders, and the better ones offer contacts and advice as well as money. In return they take shares and often want a seat on the board. Some join angel groups to share the work of finding and checking companies. Seed funds and accelerators also invest at this stage. Seed funds are small professional funds, and accelerators give a batch of young companies a small sum and a few months of help for a small share in return.

Venture capital firms raise a large pot of money from pension funds, wealthy families and similar sources, then invest it in young companies on their behalf. That means they have their own investors to answer to. Most of the companies they back fail, so they need a few very large successes to make the maths work. That’s why they push hard for growth and want a believable route to a large sale or stock market listing. From Series A onwards there’s normally a lead investor who commits first and negotiates the terms. Others then join on the same terms.

Private equity firms, hedge funds and investment banks arrive at Series C and later, once the business has proven it can make money and the risk is lower. These are large professional investors who are used to dealing with established companies rather than startups. They tend to invest large sums and expect a clear route to a sale or listing.

What a round does to ownership

At each round the company and the investors agree what the business is worth. That figure is the valuation. New shares are then created and sold to the investors, so everyone who already held shares owns a smaller percentage than before. This is called dilution. The founders accept it because a smaller share of a bigger, better-funded company is usually worth more than a large share of a small one.

Early on there’s little to measure, so the valuation rests mostly on the team, the size of the market and the story. Later, investors look at market size, market share and revenue, and often value the company at a multiple of its yearly revenue.

When a company is brand new, nobody can sensibly say what it’s worth. So the earliest investors often skip the valuation. They hand over money now in exchange for a promise of shares later, at whatever price the next full round sets, usually with a discount as a reward for going first. In the US these promises are called convertible notes or SAFEs. In the UK the common form is an advance subscription agreement. Whatever the name, the promises usually turn into real shares at Series A, alongside the new shares that round creates, which is why founders often see their percentage drop most at that point.

What this means for the technology

What investors expect of the technology changes with the round, and it helps to know what’s coming.

At pre-seed and seed, almost nobody looks closely at the code. Speed matters more than good structure, and that’s the right call. The shortcuts taken here are usually deliberate and usually fine, as long as somebody is keeping a list of them.

Series A is often the first time an investor asks a serious technical question. It’s rarely a full review, but a lead investor will want to know that the product works, that more can be built on top of it, and that the team can hire. Anything that would embarrass the founders in that conversation is worth fixing beforehand.

From Series B onwards, investors expect more formal reporting and oversight, and a technical review by the investor becomes normal. Security, the ability to cope with many more customers, the state of the code, how new versions get released, and who holds the knowledge all get examined. The same questions come up again when a company is sold. Companies that have had an independent view of their technology before this point tend to find the process far less painful, because the serious risks are already known and either fixed or explained.

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