To those who aren’t well versed in the field of entrepreneurship and early stage investing, Series A, Series B, and Series C might seem like confusing terms. Fortunately, the terms are easy to understand. Series A, B, and C have nothing to do with the alphabet. Rather the letters correspond with the development stage of the companies that are raising capital. Series A, B, and C are necessary ingredients for a business that decides “bootstrapping,” or merely surviving off of the generosity of friends, family, and the depth of their own pockets, will not suffice.

The main differences between rounds are the maturity levels of the businesses, the type of investors involved, the purpose of raising capital and how it is ultimately allocated. The funding rounds begin with a “seed capital” phase and follow with A, B, and then C funding. Once you understand the distinction between these rounds, it will be easier to analyze headlines regarding the startup and investing world, by grasping the context of what exactly a round means for the prospects and direction of a company. Series A, B, and C funding rounds are merely stepping stones in the process of turning an ingenious idea into a revolutionary global company, ripe for an IPO.

How Funding Works

Investors aren’t just altruistic entrepreneurial-loving businesspeople. Although they may be genuinely interested in the business, as many angel investors are, they ask for a portion of the business in turn for giving money. Before each round, a valuation of the company pie is typically released. Valuations derive from considerations such as management, proven track record, market size, and risk. To grow the pie’s circumference, more than a few slices need to be given away. In fact, most of the slices will be auctioned off for funding. Many small business owners with a big idea would rather have a sliver of a massive pie than the entirety of a bite-sized treat.

Planting the Seed

You can think of seed capital like an analogy for planting a seed for a tree. This round nurtures the seed or the idea for the startup. The seed hopefully grows into a mature operating business, or “tree,” when enough revenue is generated with the help of perseverance and investors’ wallets. The capital raised during the seed phase is roughly around $500,000 to $2 million but differs widely on a case by case basis.

Seed funding raises substantial funds to support the initial market research and development work for the company. This includes figuring out what the product will be and who the users or consumers will be. Additionally, the money will help employ a team to do this work. Before this stage, many entrepreneurs are working alone or with just a few business partners. With seed capital, the team will build and launch their product at their target audience.

The key players in this round are more of…