How Small and Medium-Sized Business Funding Works

• Learn about the different types of business funding.
• Discover the benefits of seed funding to businesses and investors.
• Find out where Series A funding usually comes from and its uses.
• Learn how Series B funding can help businesses grow.
• Find out why Series C funding carries less risk than other funding levels.

Entrepreneurs have plenty of ideas and vision. However, they don’t always have the capital they need to make their dreams a reality. What should a small or medium-sized business wanting to grow beyond what they can accomplish with their own resources do? Seek business funding from investors who want to both support their goals and realize a profit while doing so.

Business funding is a process that evolves with the company itself. It starts with a seed round and then moves forward. Whether you’re looking for funding or you’re a potential investor who wants the rewards that come from supporting entrepreneurs through developmental funding, you need a firm understanding of what Series A, B, and C funding are and the differences between each round.

What is one of the most important aspects of every funding round? The analysis was performed to assess its value. As a business grows and gains in reputation and market share, its needs change. The amount of money it seeks and the type of investors it will attract also changes. Fiducial has more information about funding a business below!

Seed Funding

Initial money tends to come from the entrepreneurs themselves as well as their family, friends, and others. This “pre-seed” financing is usually less of an investment than a show of support. When a company’s valuation equals between $3 million and $6 million, it can seek “seed funding” in exchange for equity in the company.

Seed funding’s name is apt, as it evokes a sense of nourishing and nurturing something that is in its earliest stage of growth. Companies at this point exist beyond the idea stage but still at the point of gathering momentum and attracting attention. Whether the monies raised from seed funding equal as little as $10,000 or as much as $2 million, they can help a company make its first foray into real growth.

What it’s used for depends upon the type of business and what the founders need to achieve their goals. Monies may be used for research and development or marketing or for hiring new staff, moving into a larger facility, or establishing a manufacturing plant. Its source may continue to be those close to the entrepreneur. However, it is also open to outsiders including venture capital companies, incubators, and angel investors.

Series A Funding

If seed funds support companies that have just gone from an idea to actuality, Series A funds provides the cash to companies that have established roots but need to grow and expand their profits.

These organizations are generally valued at about $23 million and have or are creating a robust business plan for success. The funding that they raise usually comes from savvy investors and venture capital firms. These investors recognize and reward businesses with the potential to earn real money.

As more high-tech industries have come to market, average Series A funding totals have increased. 2020’s average Series A funding reached $15.6 million – significantly higher than the typical range of between $2 million and $15 million.

Series B Funding

Once a company has gone well past the development stage and has reached valuations between approximately $30 and $60 million, they are ready to scale up. This includes investing in bringing on more people, more advertising, and more technology to advance their development goals. The funds needed generally hover around the $33 million mark, and come from venture capital firms.

Series C Funding

When well-established, successful companies want to raise money for acquisitions or mergers, to expand their reach, or for new product development, they often turn to Series C funding. These opportunities represent far less risk. They are also very appealing for investors, who understand that betting on a company that has proven itself can result in a significant return on the capital that they provide.

Each of these stages and rounds have the goal of raising monies in exchange for equity in the company. However, investors need to recognize that each has its own level of risk and reward. The opportunity to be part of a company’s growth is exciting, but careful analysis is required.

Need help in understanding how investing in an entrepreneurial endeavor can help you?Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

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