Startup funding stages explained: bootstrapping, angels, pre-seed, seed and Series A
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Startup funding has its own vocabulary, and the labels mean slightly different things in different countries and years. This guide explains the usual stages and instruments in general terms. It is education, not financial or legal advice: before raising money, talk to a startup lawyer and an accountant who know the rules where you are incorporated.
Bootstrapping
Bootstrapping means funding the company from your own savings, revenue and sometimes customers paying in advance.
- Pros: you keep full ownership and control, and the discipline of revenue keeps you close to customers.
- Cons: growth is limited by cash, and founders often go without a salary.
Many good businesses never raise outside money. Raising is a tool for growing faster than revenue allows, not a sign of success in itself.
Friends and family
Money from people you know often comes first. Treat it professionally: use proper documents, explain that most startups fail and that they may lose everything, and only take money they can afford to lose.
Angel investors
Angels are individuals investing their own money, often former founders or senior people in an industry. They may invest alone, through angel networks or in syndicates. Good angels bring advice and introductions as well as cash. Ask other founders what each angel is like to work with.
Pre-seed and seed
- Pre-seed usually funds a small team to build a first product and find early evidence of demand. Investors are typically angels, accelerators and small specialist funds.
- Seed usually funds the push towards product-market fit and repeatable growth, often with early revenue or strong usage. Seed funds and larger angel groups join in.
The boundaries are blurry, and amounts and expectations change with market conditions, sector and location.
Common early-stage instruments
- SAFE (Simple Agreement for Future Equity): introduced by Y Combinator in 2013 and revised in 2018 as the post-money SAFE. The investor pays now and receives shares later, usually at the next priced round, often with a valuation cap or discount. Widely used in the US.
- Convertible note: a loan that converts into shares at a later round, with an interest rate and maturity date.
- Advance subscription agreement (ASA): common in the UK, where it can be structured to fit tax-advantaged schemes.
- Priced equity round: investors buy shares at an agreed valuation now.
In the UK, the SEIS and EIS schemes give qualifying investors tax relief for investing in eligible young companies, and many UK angels expect a company to have applied for advance assurance from HMRC first. Check the current rules on GOV.UK, as limits and conditions change.
Series A and beyond
Series A is usually the first large priced round led by a venture capital firm. Investors typically look for evidence that the business can grow repeatedly and efficiently, not just a promising product. Expect:
- a term sheet setting valuation, investor rights and conditions
- a lead investor who negotiates terms, often with a board seat
- liquidation preferences, which decide who is paid first if the company is sold
- due diligence on your finances, contracts, intellectual property and team
Later rounds (Series B, C and so on) fund expansion and usually raise larger amounts at higher valuations, if the business has grown into them.
Other routes
- Grants and competitions: government innovation programmes and research grants, which do not take equity but often have strict conditions.
- Accelerators: programmes that offer a small investment, mentoring and a network in exchange for equity.
- Equity crowdfunding: raising from many small investors through regulated platforms.
- Revenue-based finance and loans: repaid from income, for businesses with predictable revenue.
Before you raise
- Know how long your current money lasts at your present spending rate.
- Raise enough to reach clear milestones that make the next stage easier.
- Understand dilution: every round reduces each existing shareholder's percentage.
- Keep clean records and a tidy cap table from day one.
Which funding route did you choose, and would you choose it again? Share your experience in the comments.