A startup with a brilliant business idea is aiming to get its operations up and running. From humble beginnings, the company proves the worthiness of its model and products, steadily growing thanks to the generosity of friends, family and the founders’ own financial resources. Over time, its customer base begins to grow, and the business begins to expand its operations and its aims. Before long, the company has risen through the ranks of its competitors to become highly valued, opening the possibilities for future expansion to include new offices, employees and even an initial public offering (IPO).
If the early stages of the hypothetical business detailed above seem too good to be true, it’s because they generally are. While there are a very small number of fortunate companies that grow according to the model described above (and with little or no “outside” help), the large majority of successful startups have engaged in many efforts to raise capital through rounds of external funding. These funding rounds provide outside investors the opportunity to invest cash in a growing company in exchange for equity, or partial ownership of that company. When you hear discussions of Series A, Series B and Series C funding rounds, these terms are referring to this process of growing a business through outside investment.