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Startups raise money in stages to fund growth.
Fundraising options are either dilutive (equity) or non-dilutive (grants, microloans).
The five stages outlined below are a guide to get founders started for dilutive funding (1. Pre-seed, 2. Seed, 3. Series A, 4. Series B, 5. +Series C).
Startups go through a variety of fundraising rounds throughout their lifetime. Despite the difficult macro-environment, a ton of venture capital funding is sitting on the sideline, waiting to be deployed. However, companies can also bootstrap their way to success and growth in addition to securing venture capital and other alternative financing services such as crowdfunding, investment syndicates, etc. A plethora of new venture firms also bring different approaches and promises of value add to the market.
Several VCs will not invest in companies when founders and employees have been diluted well below established benchmarks. There are always exceptions, but founders should remember their capitalization table, which shows the number of shares and the ownership percentage of all shareholders in a company.

1. Pre-Seed Capital

You have an idea, two to five team members, and preferably an early working prototype at this stage. Most repeat founders will be able to secure funding without a working prototype and with just an idea. Funding at this stage covers the very early stages in the life of a startup and is often comprised of three main sources of financing:
- Friends and Family (FF Round)
- Business Angels (BA)
- Accelerators (aka company builders like YC, Techstars, and Rockstart)
The round size will vary between $50K and $500K, and valuations are capped at ±3mm, usually in the form of a convertible note or SAFE (a simple agreement for future equity). The investors will look to get a ±15% ownership stake, with many accelerators asking between 5 to 10% of the company and the balance between FF and BA.

Seed funding, also known as seed money or seed capital, is necessary to start a company; funds usually go toward customer/market research and product development. A seed round refers to a series of investments in which various investors (typically no more than ten but preferably no more than 5) participate to provide funding in exchange for convertible notes, preferred stock options, or seed round equity.
At Pace, for this stage, we look for a founding team of at least two members, up to 8 additional team members, an early version of a product/service, and some user feedback or one or two signed commercial agreements. After the conclusion of this round, the cap table will generally look as follow:
A VC firm will look to have a 10%-20%
A group of angel investors/pre-seed will look to get 5–10%.
Often, the seed and angel rounds happen simultaneously, so another way to view this would be to have all the investors with ±30% of the fully-diluted cap table.

Startups that get to this stage have usually figured out early versions of their product/service and the market size and needed capital to scale (hire people and improve distribution systems).
Series A rounds (and all subsequent rounds) are usually led by one investor, who anchors the round. Getting that first investor is essential, as founders often find that other investors fall into line very quickly once the first one has committed.
Regardless of geography, Series A rounds are led by traditional Venture Capital firms that like to own between 15 and 25% of the startups. Therefore, upon completing this round, startups should aim that all external investors have no more than 50% of the fully-diluted cap table. Said another way, founders and ESOP combined should be close to or higher than 50%.

Series B’s are all about scaling. Successful startups at this stage tend to have an established and growing user base and a working business model.
Series B venture capital firms like to own between 10 and 20% of the startups.

When companies reach this stage, they are considered to be fully mature. This means they are ready to expand to new markets, acquire other businesses, or develop a new line of products. Therefore, the business model is working -whether or not the company is profitable.
In the past, it has been common that a Series C round is a final push to prepare a company for an IPO or an acquisition.
In the last 24 months, private equity firms and investment banks have gotten involved. They have started to lead deals with the participation of large Venture Capital firms as companies have stayed private longer, so it is common to see Series D and E rounds lately.
Venture capital firms like to require ownership stakes between 10 and 15% of the startups at this stage.