Startup Funding Stages: What’s the Difference?

Funding is essential for most startups to grow. As founders are raising capital, one question that comes up repeatedly is:

What should I call this round of funding?

There is no one answer to this question. The label on the funding round depends on various factors such as the stage of the product, the amount of money raised, the valuation, the funding instrument and the type of investors involved. However, there are some general guidelines that can be followed when naming a funding round.

Below are some guidelines for Friends and Family, Pre-Seed, Seed and Series A.

Friends and Family

  • Product: Concept
  • Amount: Under $500,000
  • Post-Money Valuation: Below $5 million
  • Instrument: SAFE or Convertible Note
  • Investors: Personal Network of the Founder

Friends and Family is the first round of funding for most startups. At this stage, the company has a clear concept but doesn’t have much beyond a pitch deck or a demo. The startup will use the funding to set up the company, hire contractors and build out the first minimum viable product.

Friends and Family rounds are fairly modest in size. Though the dollar amount can vary, it’s generally under $500,000. The post-money valuations are typically below $5 million. Though friends and family sometimes make an equity investment in the company, it’s most common to use a Simple Agreement for Future Equity (SAFE) or a Convertible Note because these instruments allow startups to raise capital quickly and with low legal fees.

If you’re interested in learning more about these instruments, check out:

Given the intimacy with the investors, entrepreneurs may be tempted to accept money from their friends and family without properly documenting the investment. However, even when capital comes from those closest to you, entrepreneurs should always carefully document each investment. In doing so, entrepreneurs maintain clarity, avoid future conflicts and ensure a proper foundation for future investment. Additionally, it’s important to ensure that friends and family investing in your company are Accredited Investors.


  • Product: Minimum Viable Product
  • Amount: $1 million
  • Post-Money Valuation: $10–$15 million
  • Instrument: SAFE or Convertible Note
  • Investors: Angel Investors

Once the startup has established a clear concept and developed a minimum viable product, it will be ready for a Pre-Seed round. The Pre-Seed round provides the financial runway needed to accomplish the next phase of product development.

Pre-Seed rounds are typically under $1 million. The post-money valuations are generally below $15 million. Startups mostly use SAFEs and Convertible Notes for Pre-Seed financing.

A Pre-Seed round of funding will occur after entrepreneurs have tapped into their personal network and before venture capitalists are involved. That’s where angel investors come in. Angel investors have experience in startups and likely some industry-specific experience as well. As such, they may add a bit more pressure and scrutiny than friends and family; conversely, they also generally bring a network to open doors for the startup. The benefits of industry knowledge and coaching from an angel investor can help the startup with key early decisions.


  • Product: Product in Market
  • Amount: $2–$5 million
  • Post-Money Valuation: $20–$30 million
  • Instrument: Series Seed Docs or NVCA Docs
  • Investor: Angels and Venture Capitalists

It may be time to consider a Seed round once your product begins performing well in themarket. Seed rounds are typically between $2–$5 million at a post-money valuation between $20–$30 million.

Though some Seed funding is done on SAFEs and Convertible Notes, the Seed round is often the first round of equity financing. Equity financing has a number of key implications for a startup. First, the startup is selling preferred shares in the company. Second, the investor and founder will be negotiating the valuation of the company. Third, any previous SAFEs and Convertible Notes will convert into equity at the same terms as the new investors.

Depending on the size of the round, the deal will be drafted based on the Series Seed documents or the National Venture Capital Association (NVCA) documents. If you want to understand the terms of Seed funding, check out our Founder’s Guide to Seed Funding. This round is a major milestone in startup funding phases. A Seed round starts to include early-stage venture funds. The funding secured during a seed round is vital in extending the runway necessary to reach significant business milestones that set the company up to raise a Series A.

Series A

  • Product: Product Market Fit
  • Amount: $10–$15 million
  • Post-Money Valuation: $50–$75 million
  • Instrument: NVCA Docs
  • Investors: Venture Capitalists

Once you add a letter to the name of the financing round (e.g. Series A, Series B, etc.), it’s a signal that a company has found product market fit and is looking to scale. An average Series A round will be between $10–$15 million at a Post-Money valuation of $50–$75 million.

As the stakes get higher, the scrutiny increases. Investors are more vigorous about protecting their rights. Thus, the process for raising Series A financing from initial contact to closing may take considerably longer than previous rounds. Typically, Series A rounds are led by venture capitalists. These investors will require polished presentations; detailed legal, financial and commercial due diligence; and close involvement from legal counsel on all sides. The Series A document set is considerably more extensive than earlier funding rounds and must be negotiated with care as the terms can prove difficult to change in subsequent financing rounds. If you want to understand the terms of Series A funding, check out our Founder’s Guide to Series A.

Series A investors may require significant governance changes, including a seat on the board of directors. With each subsequent round of funding, investors will increase their representation on the board of directors, which in turn decreases the founder’s power to govern the company. While this can be difficult for entrepreneurs, it is a positive indication that the company has been well-managed and is on the right trajectory.
Kudos, founder!

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