The Stages of Startup Funding: a Cheat Sheet

The 3 Key Pitch Deck Components

Navigating the journey of transforming a brilliant idea into a thriving business is no small feat.

Among the crucial milestones along this path, securing the right kind of funding at the appropriate stages is paramount. Understanding the "stages of startup funding" is like having a roadmap for this journey, guiding entrepreneurs through the complex terrain of investment.

This article aims to demystify these stages, shedding light on each phase's unique challenges and opportunities. Whether you're a budding entrepreneur dreaming of launching your startup or a seasoned founder looking to scale, grasping the nuances of startup funding can significantly impact your venture's success. Let's dive into the dynamic world of startup funding, exploring its stages from the initial spark of an idea to the exhilarating heights of growth and expansion.

The Slidebean Startup Stage Cheat Sheet

Stage Team Product Traction Go-to-Market and TAM Common Deal Breakers Funding sources
Software Startups Hardware / R&D Startups Software Startups Hardware / R&D Startups TAM = Total Addressable Market Software Startups Hardware / R&D Startups Useful links
Idea Stage - 1-2 founders with an idea

- Recruiting team for prototype launch
- No product yet

- 'Coming soon' page or social media presence
- No product built N/A - Potential client conversations

- Waitlist customers

- Potential manufacturer talks
N/A - Incubators

- Bootstrap
Pre-Seed - 2+ founders with the core skills to build/launch prototype

- Founding team can build a prototype without external core skills

- Deep insights into the problem, based on industry expertise

- Clear picture of how their product should work
- The team has started developing a low-fidelity prototype - The team has started developing the first prototype

- Sometimes an initial testing prototype has been created by the founders in an unscalable way to test the idea

- Clear product roadmap is done
- Conversations with potential clients, who have shown interest. - IP secured

- Patents are in place
Strong indications of a large opportunity - The team is still looking for an additional co-founder.

- One of the skills needed to build and launch the product is still missing.
- $1 to $1M from Friends and Family

- $1 to $1M from Angel investors who already know you

- $20K-$150K from startup accelerators

- Bootstrap (don't quit your day job)
- $1 to $1M from very super-early-stage VC Startup Funds University and Governemnt Grants for R&D and Hardware
Seed - Small, functioning team built around founders' core skills

- Can build fast and iterate quickly

- Strong industry contacts

- Understands market operations
- Launched MVP in market

- Organic growth despite limited capital
- Iterated product ready for market launch

- Sometimes, a recently launched, fully functional prototype
- Product loved by users

- Proof of guerilla marketing/founder sales success

- Good customer engagement and stickiness

- For SaaS: $25,000-$1M in ARR, growing 2x - 3x Y-o-Y
- Distribution partnerships secured

- Initial sales

- Understands initial unit economics
- Compelling growth strategy - Launched product with no traction

- Raised Pre-Seed round but failed to launch successfully
- $1M to $3M from early-stage VCs

- $1M to $3M from Angel investors
Series A - High-performing tech team

- 2-3 experienced execs in product, marketing, or sales
- Iterated product with initial user feedback - Upcoming complex products with years of R&D

- Solid product distribution network

- Robust user experience feedback

- Continuous new feature development
- Clear Product-Market Fit: high usage, low churn, high NPS

- Strong customer references

- Large, repeatable customer acquisition channel

- For SaaS: $1M - $5M in ARR, growing at 1.5x - 2.5x Y-o-Y
- Clear Product-Market Fit and solid unit economics

- Strong customer references

- Large, repeatable customer acquisition channel

- $1M - $5M in ARR, growing at 1.5x - 2.5x Y-o-Y
- Compelling "why now": reason for exponential impact of capital - High churn

- Non-profitable unit economics

- Team conflicts
- $3M to $10M from Institutional VCs
Series B - Proven ability to recruit and lead

- Hired 1-2 proven VPs

- Can handle 20x today's size

- Excellent understanding of key business drivers
- Robust customer feedback across markets

- Scalable product design with additional feature development
- Consistent customer feedback across markets

- Scalable design with ongoing feature additions
- Strong scalable, profitable customer acquisition

- Short sales cycles relative to ACV

- >110-120% NDR

- < 15 months CAC payback

- Growing at 1.5x - 3x
- Strong Product-Market Fit in multi-billion dollar market with $300m+ ARR potential

- Scalable, profitable customer acquisition
- Strong Product-Market Fit with $300m+ ARR potential - Negative growth for >1 year

- Negative unit economics

- Obsolete market
- $10M+ from Institutional VCs
DOWNLOAD A COPY

Startup Funding Explained: From Idea Stage to Series B

Idea Stage


At the heart of every groundbreaking startup lies a simple, yet powerful spark: the Idea Stage. This initial phase is where dreams begin to take shape, driven by one or two founders passionate about their product or service concept. At this juncture, the focus is on assembling the core team necessary to breathe life into their vision, laying the groundwork for what will eventually become a tangible prototype.

During the Idea Stage, the product exists only as a concept. Entrepreneurs might create a 'coming soon' landing page to secure their online presence or generate some buzz through social media channels, but the actual product development has yet to commence. This stage is characterized by its lack of a physical product, with efforts concentrated on conceptual and preparatory work.

Traction at this point is also conceptual, revolving around preliminary market interest rather than tangible sales or user engagement. Founders might engage in discussions with potential clients, gather a list of interested customers, or initiate conversations with manufacturers and suppliers. These activities are crucial for validating the market need for the product and refining the concept based on feedback.

Given the nascent nature of the startup during the Idea Stage, traditional funding sources like venture capital are typically out of reach. Instead, founders may turn to startup incubators that provide mentorship, resources, and sometimes seed funding to help transform their idea into a viable business model. Alternatively, bootstrapping—self-funding the venture through personal savings or revenue from initial sales—allows founders to maintain control and equity in their startup.

The Idea Stage is more than just the inception of a startup; it's a period of exploration, validation, and strategic planning. It requires founders to be visionary, yet pragmatic, as they lay the foundation for their entrepreneurial journey. Securing the right support and resources during this stage can make all the difference in propelling an idea toward the next phases of startup funding and development.

Pre-Seed Stage

Transitioning from the Idea Stage, startups enter the Pre-Seed Stage, a critical phase that sets the foundation for future growth and development. This stage is marked by a team of two or more founders equipped with the essential skills to build and launch a prototype. These individuals possess deep insights into the problem they aim to solve, backed by industry expertise and a clear vision of their product's functionality.

At the Pre-Seed Stage, the startup begins to take a more tangible form. The team has initiated the development of a low-fidelity prototype, which may include an initial, basic version of the product designed to test and validate the concept. This could also involve creating a more substantial prototype to showcase the idea's potential to early adopters and investors. A clear product roadmap is outlined, signifying a strategic plan for future development and iterations based on initial feedback and testing results.

Traction during this stage is demonstrated through engagements with potential clients who have shown interest in the product. These early interactions are crucial for gathering feedback and building a preliminary customer base. Additionally, securing intellectual property through patents indicates a commitment to protecting the innovation and adds value to the startup.

Despite these advancements, the Pre-Seed Stage is not without its challenges. Common deal breakers include the ongoing search for additional co-founders to fill critical skill gaps and the need for a complete founding team capable of driving the project forward.

Funding at this stage often comes from personal networks, including friends and family, as well as angel investors familiar with the founders. Startup accelerators play a significant role by offering seed money, mentorship, and resources in exchange for equity. Bootstrapping remains a viable option, encouraging founders to sustain their startup through careful financial management and reinvestment of initial sales.

The Pre-Seed Stage is a time of preparation, validation, and early development. It serves as a launchpad for startups, enabling them to refine their product, solidify their team, and begin laying the groundwork for scaling. With the right mix of vision, talent, and early financial support, startups can successfully navigate this stage and move closer to realizing their full potential.

Seed Stage

The Seed Stage represents a pivotal moment in a startup's journey, where the initial concept begins to sprout and demonstrate its potential for growth. This phase is characterized by a small but effective team that revolves around the founders' core skills. The team's agility and ability to learn from new experiences are critical, as they enable quick iterations based on feedback and changing market demands. Having strong industry contacts and a solid understanding of the market dynamics further bolster the startup's position, providing valuable insights and potential partnerships.

A significant milestone of the Seed Stage is the launch of a Minimum Viable Product (MVP) into the market. This MVP serves not only as a proof of concept but also as a means to generate organic growth, even with limited capital. The focus is on refining the product based on real user feedback, sometimes iterating on a recently launched, fully functional prototype to better meet customer needs.

Traction during the Seed Stage is evident through several key indicators: users who genuinely love the product, successful guerrilla marketing or founder-led sales efforts, strong customer engagement, and for Software as a Service (SaaS) startups, achieving $25,000 to $1M in Annual Recurring Revenue (ARR) with a growth rate of 2x to 3x year-over-year. These achievements underscore the startup's ability to attract and retain customers, a crucial factor for long-term success.

Furthermore, the Seed Stage sees startups beginning to secure distribution partnerships and make initial sales, demonstrating a basic comprehension of unit economics. This financial acumen is essential for understanding how the startup can become profitable over time.

Developing a compelling go-to-market strategy that outlines how the startup will continue to grow and capture market share is also a hallmark of this stage. However, startups must be wary of common pitfalls, such as launching a product that fails to gain traction or not being able to successfully execute post a Pre-Seed funding round. These challenges highlight the importance of product-market fit and the ability to pivot when necessary.

Funding during the Seed Stage typically ranges from $1M to $3M, sourced from early-stage venture capitalists and angel investors who see the potential in the startup's vision and initial market traction. This influx of capital is crucial for scaling operations, enhancing the product, and expanding the team to accelerate growth.

The Seed Stage is a testament to a startup's resilience and potential. By successfully navigating this phase, startups lay a strong foundation for scaling their operations, attracting further investment, and moving towards becoming a formidable player in their respective markets. Our team can help you get your pitch deck ready.

Series A Stage

The Series A funding stage is a critical juncture in a startup's lifecycle, marking the transition from a promising early-stage company to one poised for significant growth and scale. By this stage, startups have not only validated their product in the market but have also begun to fine-tune their operations for efficiency and growth.

A hallmark of the Series A stage is the assembly of a high-performing technical team, complemented by the strategic recruitment of 2-3 experienced executives in key areas such as product development, marketing, and sales. These leadership additions signal the startup's commitment to scaling its operations and enhancing its strategic capabilities.

Product development during Series A is characterized by continuous iteration based on user feedback. Startups at this stage often work on complex products that may have required extensive research and development, and are now focused on refining these offerings. The presence of a solid distribution network and a product that garners robust user experience feedback are indicative of a startup's readiness to scale. Continuous development of new features ensures that the product remains competitive and responsive to market needs.

Evidence of Product-Market Fit (PMF) becomes paramount during Series A. This is demonstrated through high product usage, low customer churn rates, a high Net Promoter Score (NPS), and strong customer references. For SaaS companies, achieving $1M to $5M in Annual Recurring Revenue (ARR), with a growth rate of 1.5x to 2.5x year-over-year, is a clear indicator of PMF. Additionally, having a large, repeatable customer acquisition channel underscores the startup's ability to consistently attract and retain customers.

Financially, startups in the Series A stage show a solid understanding of unit economics, which is crucial for demonstrating to investors that the business model is sustainable and scalable. The ability to articulate a compelling "why now" narrative is vital, convincing investors that an infusion of capital will significantly accelerate the business's growth trajectory.

However, startups at this stage must navigate potential deal breakers such as high customer churn, unprofitable unit economics, and internal team conflicts. These challenges can undermine investor confidence and the startup's overall viability.

Funding in the Series A stage typically ranges from $3M to $10M, sourced from institutional venture capitalists. This capital is instrumental in scaling the startup's operations, expanding the team, and entering new markets. Successfully securing Series A funding is a testament to a startup's potential for long-term success and marks a pivotal step toward becoming a leader in its industry.

Series B Stage

The Series B stage is often seen as the growth phase for startups that have successfully navigated the early challenges of establishing their product and business model. This stage is about scaling up, expanding market reach, and solidifying the startup's position in the industry. It's a critical time when the foundational work done during the Seed and Series A stages begins to translate into rapid growth and increased market share.

Leadership and team capabilities are crucial at this stage. Startups need a proven ability to recruit and lead, with the addition of 1-2 proven VPs who bring expertise and leadership in critical areas of the business. The ability to manage and drive growth, often aiming to handle operations 20 times the current size, requires an excellent understanding of the business's key drivers. This strategic vision and operational efficiency are vital for navigating the complexities of scaling.

Product development during Series B focuses on leveraging robust customer feedback from various markets to refine and enhance the product continually. A scalable product design is essential, allowing for the ongoing development of additional features that meet evolving customer needs and preferences. This iterative process ensures the product remains competitive and aligns with market demands.

A key hallmark of the Series B stage is strong evidence of scalable, profitable customer acquisition. Metrics such as sales cycles relative to Average Contract Value (ACV), Net Dollar Retention (NDR) rates exceeding 110-120%, Customer Acquisition Cost (CAC) payback periods of less than 15 months, and growth rates of 1.5x to 3x, are indicative of a business model that can sustainably scale. These metrics not only demonstrate the startup's market traction but also its operational efficiency and effectiveness in capitalizing on its market opportunities.

The startup must also show evidence of strong Product-Market Fit (PMF) in a potentially multi-billion dollar market, with the capacity to achieve $300m+ in Annual Recurring Revenue (ARR). This level of PMF and the ability to capture significant market share are critical for attracting Series B investment, as they indicate the startup's potential to become a dominant player in its industry.

However, startups at this stage must be wary of potential pitfalls such as negative growth for more than one year, negative unit economics, or targeting an obsolete market. These factors can significantly hinder the startup's ability to secure further funding and scale.

Funding at the Series B stage typically exceeds $10M, sourced from institutional venture capitalists who are confident in the startup's potential for high returns. This capital infusion is aimed at accelerating growth, expanding into new markets, and further developing the product.

Successfully securing Series B funding is a testament to a startup's resilience, market potential, and the effectiveness of its growth strategy. It marks a significant milestone in the startup's journey towards becoming a market leader and setting the stage for future expansions, possibly towards Series C and beyond.

Ready to start your fundraising path? Get The Slidebean Startup Stage Cheat Sheet for free

DOWNLOAD A COPY

Slidebean logo
© Copyright 2024 Slidebean Incorporated. All rights reserved.
Made with 💙️ in New York City and San Jose