Series ABCD Funding: Definition, Requirements and Application Process
Companies, especially start-ups, often need to raise capital in order to fund their expansion plans or research and development rounds. Series ABCD funding, also known as start-up funding, is related to this process of raising funds.
In the following article, you will learn about the different stages of ABCD funding and how they work.
What Is Series ABCD Funding?
Series ABCD funding, as the name suggests, is the "series" of funding stages an organization goes through before reaching the stage of an Initial Public Offering (IPO).
It can be challenging for an infant company to get the required investment and achieve its business goals with one round of funding. That's where the model of Series ABCD funding comes from.
In each round, the start-up goes through evaluations to get funding offers from the investors. Investors, in return, become shareholders of the company by getting equity shares in exchange.
Series A Funding
Before starting with Series A, you should know what seed funding is. Seed funding is the capital a company raises at the beginning. It mostly involves getting funding from close friends and relatives or putting in one’s own money.
After seed funding, Series A funding is the first step which involves venture capital firms/investors. In this basic step of the funding series, the company has to be prepared with a proper business model to convince investors.
At this stage, the investors are willing to believe in an idea and the strategy model of a start-up company and hope to turn it into a money-making business.
Series B Funding
In this next step, the company has to be ready with its services or goods along with a proper branding strategy. Most companies that apply for a Series B funding round have established themselves in the market and tend to have a substantial user base.
During Series B negotiations, the company also has to show that the capital raised through the first stage has been properly utilized, convincing the investors that they are investing in a promising venture.
Series C Funding
If a company reaches Series C, it shows that the organisation is doing well in the market and is ready to move forward with new ideas and products. Companies looking for Series C funding often want to expand their business into the international market or seek to increase their valuation before launching their IPO. It can also be the final round of fundraising for a company.
Series D Funding
Series D funding is not something that every organization goes for and can be a little more complicated than the previous ones. Although most of the companies finish raising funds in Series C, some companies may require a Series D. Some scenarios have been discussed below:
- Scenario 1: The company failed to meet its goals set in the last 3 series of funding and may require more time and funding for its business plans. These companies tend to lower their valuations during Series D. This leads to losing some of their stock value and credibility. Venture capitalists usually back such funding.
- Scenario 2: The organization is looking for a new opportunity before going public or launching an IPO. It is quite common for companies to raise capital and increase their valuation before going public.
How Does Series ABCD funding Work?
To know how this series funding works, it is important for you to understand who is involved in this whole process.
Primarily, it is the start-up owners who initiate the process and look forward to a positive response for expanding their business. Generally, these companies start with pre-seed and seed funding rounds before starting with Series ABCD funding.
On the other side are the investors. They look forward to getting substantial equity shares in return for their investments. They support a small business if they believe that it has the potential to be successful and reap profits in the future. They also want to earn shares of profits by making an investment.
Each investor keeps partial ownership of the company so that they can benefit from the growth of the company. Based on the type of business and other possibilities, a company has various financing options at the beginning. Start-ups usually get their first investments from angel investors or "seed" investors.
Things to Keep in Mind Before Getting Series ABCD Funding
Finding investors for a start-up can be difficult, but one should be careful and prepared before seeking funding. There are a few things one needs to keep in mind to assure the investors that their investment will be beneficial in the long run.
- You must be prepared with a proper business model before inviting your investors in. You have to make a plan explaining your products, expected expenses, and your target market or areas of the market that you wish to dive into.
- Make sure that your unit economics are set. By unit economics, one means the revenue and cost of a business measured on a per unit basis.
- You have to prove the reason behind organising a funding round. You are expected to show your investors that you are generating revenue on a smaller scale, and that you can increase the revenue significantly after getting the required funds.
- Demonstrate your product-market fit. Explain to your investors how your product is suitable for the market and the chances of its demand.
- You have to show that you have done your homework. Entrepreneurs have to prove that they have done their customer research thoroughly and they understand their target market.
- There is a right time for everything, and you have to choose yours. Before deciding to pitch, choose a time of the year which will fit with your product and also meet the investors at a suitable time.
How to Apply for Series ABCD Funding?
There is no hard & fast rule when it comes to applying for Series ABCD funding. You can go through the following steps to know how to prepare for your funding stage:
Step 1: As an owner of your business, you should make a note of all the parameters the venture capitalists might check before they make up their minds. Consider having an in-depth knowledge of traction, validation of your business idea, customer research, your team, management protocols, location & relevancy and your equity model.
Step 2: Even if you have a basic team which is just starting, plan to expand your business and your team as well. Plan to build a quality team as it is the strength and quality of your human resource which mainly decides a company’s success.
Step 3: Choose an active and compatible investor, preferably from the lead investors. Make sure that the investors’ ideas and your business goals align with each other.
Step 4: Closing the deal is the final step, but that's not where the work ends. It takes approximately 3 to 6 months for the legal process to complete. So, be ready with the required paperwork to complete it as early as possible.
Step 5: During each stage of the funding process, go through the terms and conditions of the deals comprehensively. Keep legal assistance handy.
There are hundreds of start-ups emerging regularly who are looking for funding to fulfill their business ideas. Giving away a part of your company might not sound like an attractive proposition, but getting backing from leading venture capital firms will ensure your company’s success.
Now that you have learned what Series ABCD funding is and how it functions, it should be easier for you to take preparations accordingly.