How startup funding works: pre-seed, seed, Series A, B and C
What each funding round is for, who usually invests, what they want to see, and how much of the company you give away along the way.
7 November 2026 · 9 min read
Most venture-backed startups raise money in stages. Each round buys time to reach the next milestone, and each one asks a slightly different question of your business and of your financial model. This guide walks through the journey from pre-seed to Series C, what investors look for at each stage, and how dilution works.
The funding journey at a glance
- Stage 0BootstrapFounders' own money, revenue, grants
- Stage 1Pre-seedAngels, friends and family, accelerators
- Stage 2SeedAngels, seed funds: find product–market fit
- Stage 3Series AVC-led: build a repeatable growth engine
- Stage 4Series BScale what works, new markets
- Stage 5Series C+Growth funds, PE: expand, prepare to exit
- OutcomeExitAcquisition or IPO
What each round is for
Pre-seed: prove the problem
Usually the first outside money, from the founders themselves, friends and family, angel investors, accelerators or grants. It funds early product work and customer discovery. Investors are mostly backing the team and the size of the problem.
What your model needs: a simple 18 to 24-month cash plan, a clear use of funds, and the milestones the money gets you to.
Seed: find product–market fit
Seed money comes from angels, seed funds and early-stage VCs. The goal is to show that customers want the product and that you can reach them repeatably. Carta's data for early 2025 put the median seed pre-money valuation at about $16 million for the (mostly US) companies on its platform (Carta, State of Private Markets Q1 2025). UK rounds are typically smaller.
What your model needs: a bottom-up revenue build (customers × price), early unit economics, a hiring plan, and monthly cash flow showing runway to the next round.
Series A: build a repeatable growth engine
Series A is usually led by a venture capital firm. Investors want evidence: revenue, retention, and a sales and marketing engine whose costs they can see. In the same Carta data the median Series A pre-money valuation was about $48 million (Carta, Q1 2025).
What your model needs: a full monthly three-statement model, cohort or retention assumptions, customer acquisition cost (CAC) and payback, and a burn plan that reaches clear Series B milestones.
Series B: scale what works
Series B funds scaling: bigger teams, new markets and more sales capacity. The questions shift from "does it work?" to "how efficiently does it grow?". Metrics such as the burn multiple (net burn ÷ net new annual recurring revenue) matter more (David Sacks, The Burn Multiple).
What your model needs: department-level budgets, hiring against revenue, gross margin by product, and working capital.
Series C and later: expand and prepare for exit
Later rounds bring in growth funds, private equity and sometimes strategic investors. Money goes into acquisitions, international expansion or getting ready for an IPO or a sale. Investors look at the path to profitability and at returns.
What your model needs: scenario planning, multi-entity and multi-currency views, debt, and a clear path to positive free cash flow.
How a priced round works
- 1PitchDeck and model shared
- 2Partner meetingQuestions on the numbers
- 3Term sheetValuation, amount, rights
- 4Due diligenceModel, legal, customers
- 5CompletionLegal docs signed, money in, cap table updated
Before a priced round, many early companies raise on a convertible instrument instead. In the UK this is often an Advance Subscription Agreement (ASA), in the US a SAFE, or a convertible loan note. The money converts into shares at the next priced round, usually at a discount or under a valuation cap.
How dilution works
When you raise a priced round, new shares are issued, so existing shareholders own a smaller percentage of a (hopefully) more valuable company.
An option pool for future hires is often created or topped up in the same round, which dilutes existing holders further. Model the cap table alongside the cash plan so you can see your ownership after each round.
UK-specific: SEIS and EIS
UK investors can claim income tax relief on qualifying investments through the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). Many UK angels will only invest in companies with advance assurance from HMRC. Limits and rules change, so check the current guidance on GOV.UK before you raise.
Where your financial model fits
At every stage the model answers the same three questions: how much do you need, what will it get you to, and when do you run out? Investors use it to test whether your plan is realistic, not to hold you to exact numbers. A model with traceable assumptions, monthly cash flow and statements that balance gets you through diligence faster. See what investors look for in a financial model.