Funding Rounds in Plain English

Funding rounds are among the most discussed and least understood parts of startup life. News articles announce a "seed round" or a "Series B" as if everyone knew what the words meant. Founders use the labels to describe where they are. Investors use them to describe what they do. A newcomer, reading a database, may wonder whether a company that has raised a Series A is bigger than one that has raised a seed, and by how much.

This reference explains the main round names in plain language, what they usually involve, why the numbers vary and how to read funding data without over-reading it. It describes common conventions, not rules, and it is not financial advice.

What a round is

A funding round is an event in which a company raises money from investors in exchange for a share of the company, or for a right to a share later. The terms of each round vary: the amount, the price per share, the type of security and the rights attached are all negotiated.

Rounds are labelled by convention. The labels signal the company's approximate stage and the kind of investor involved, but they are not legal categories. There is no official definition of a Series A. A company can describe a round however it likes, and different countries and sectors use the labels differently.

Before the rounds: self-funding and small support

Many companies begin without any formal round.

• Bootstrapping. The founders use their savings and the revenue the business produces.
• Friends and family. Early money from people who know the founders, often informal.
• Grants and competitions. Non-dilutive funding from public bodies or organisations.
• Customer funding. Pre-orders and paid pilots that finance development.

These are not rounds in the formal sense, but they are an important part of how many companies start. A database should record them accurately if the data is available, and not assume a company has raised nothing.

Pre-seed

Pre-seed money supports the earliest steps: shaping the idea, building a prototype, testing with potential customers. It is often small, informal and may come from founders, angels, accelerators or small funds. Some founders and investors do not use the label at all.

Seed

Wikipedia describes seed funding as early-stage capital from friends, family and angel investors that precedes Series A and supports initial company formation and concept validation. In practice, seed rounds are also raised from small venture funds and from accelerator programmes. The money is typically used to build a first product, hire a small team and find early customers.

At this stage, a company usually has a prototype and early evidence but not a proven model. Investors are betting on the team and the idea. Round sizes vary widely by sector and country.

Series A

Wikipedia calls a Series A the first significant round of venture capital financing. It notes that investors typically take a stake that is often described as ten to thirty per cent, that the money is intended to sustain operations for six months to two years, and that it supports product development, marketing, hiring and early operations. It also notes that amounts vary by industry: general startups often raise less than very capital-intensive ones, such as pharmaceutical or semiconductor businesses, where rounds frequently exceed ten million dollars.

A Series A usually follows evidence of traction: customers, usage or revenue that suggests the model could scale. Investors at this stage are more likely to be venture capital funds, and the terms are more formal. The shares issued are typically preferred stock, which Wikipedia notes can convert to common stock on a public listing or acquisition.

Series B and later

Later rounds, labelled B, C, D and so on, are for companies that have a working model and need capital to scale. Wikipedia describes Series B as for companies with consistent revenue that need money to meet growing demand and expand their reach, and Series C and D as supporting expansion into new markets, product development, acquisitions or preparation for going public.

As rounds progress, amounts tend to rise, investors tend to include larger funds and, in some cases, other kinds of investors such as growth funds. Expectations also rise: investors look for stronger evidence of revenue, margins and a path to a sale or listing.

Other forms of financing

Not all funding fits the round labels.

• Convertible notes and similar instruments. A loan or agreement that converts into shares at a later round.
• Venture debt. Borrowing, often alongside equity rounds.
• Revenue-based financing. Repayment as a share of revenue.
• Crowdfunding. Many small investors, through platforms.
• Strategic investment. Money from a company that has an interest in the startup's technology or market.
• Public grants and loans. From government or other bodies.

A good database records the type, not only the label.

Why amounts vary

Two companies both described as "seed" can have raised very different sums. Reasons include:

• Sector. A software startup needs less capital to build a first product than a hardware or biotech company.
• Country and market. Funding cultures and sizes differ.
• Period. Typical amounts change as markets rise and fall.
• Investor type. Angels and funds work at different scales.
• Company ambition. Some founders choose to raise less and keep more of the company.

Wikipedia's note that amounts vary by industry is a reminder not to compare rounds across contexts without care. If a database shows amounts, it should show the currency, the date and the source.

Reading funding data critically

Funding data appears in announcements, news articles, filings and databases. Treat it with some scepticism.

Announced is not the same as closed. A company may announce an intention before money has moved.

Amounts may be rounded or stated differently. "Up to" and "total including" are not the same as "raised".

Dates are ambiguous. An announcement date, a closing date and a filing date may differ.

Investor names may be incomplete. Some participants are not disclosed.

Valuations are often not public and may be estimates.

Self-reported data can be inflated. Check against other sources.

For UK companies, official records can offer verification of some facts. GOV.UK's guidance on getting information about a company explains that Companies House provides free access to details such as the registered address, incorporation date, officers and filed documents. Filed documents can sometimes show share allotments, which can corroborate a funding event, though interpreting them takes care.

How a profile should record funding

A careful startup profile should:

1. List each round separately, with a date.
2. Record the label as announced, the amount if public, the currency and the source.
3. Name lead and participating investors only where public.
4. Distinguish announced from verified.
5. Show total raised only when it can be calculated from the listed rounds, and say that it is a sum of listed rounds.
6. Record non-equity funding separately.
7. Show when the data was last checked.
8. Leave fields blank when unknown, not zero.

A worked example

Consider a fictional company, Tidewell. Its profile lists three funding events.

• Pre-seed, April of year one: small angel investment, amount not disclosed, source: company announcement.
• Seed, January of year two: announced by the company with a named lead investor. Amount: stated in the announcement in pounds. Verified against a filed document by the database team, which noted that the allotment date was two weeks after the announcement.
• Grant, June of year two: innovation grant from a public body, listed as non-equity, with the source.

The profile shows each with its date, source and verification status. Total equity raised is not displayed, because the pre-seed amount is unknown. A reader sees a clear picture of what is known, what is not and how each fact was established.

What the labels do not tell you

A funding label does not tell you whether a company is profitable, whether it is growing, whether its product is good or whether it will survive. It tells you only that a certain kind of investor, at a certain time, put in a certain amount, if that is known. Use it as a clue, not a verdict. The categories and search pages on this site let you find companies by what they do, and compare them on facts such as founding year and country.

A short glossary

• Equity: shares in a company.
• Dilution: the reduction in existing owners' percentage when new shares are issued.
• Valuation: an estimate of a company's worth, often negotiated at each round.
• Lead investor: the investor who sets terms and brings others in.
• Preferred stock: shares with rights that ordinary shares do not have.
• Term sheet: a summary of proposed terms, before the final agreement.

Common misreadings to avoid

Three misreadings crop up often. The first is treating a round name as a ranking: a company that has raised a Series B is not necessarily better or safer than one that is still at seed, only further along a particular financing path. The second is adding up headline figures without checking whether they overlap, since a company may announce a round and later announce the same money again as part of a larger one. The third is assuming that a company without a listed round has raised nothing, when it may simply have chosen not to announce. Read each entry as a dated, sourced statement, and keep open the possibility that the full picture is larger than the one on the page.

Frequently asked questions

Is a Series A bigger than a seed? Usually, but not always, and sizes vary by sector.

Can a company skip rounds? Yes. Some go from seed to Series B, and some never raise a round at all.

Where can I verify a UK company's details? Companies House publishes free company information, including officers and filed documents.