Series A, B & C Funding Definition

When you hear about Series A, B and C funding, that refers to various rounds of preferred equity funding. Preferred stock is similar to regular equity (“common equity”), except that it has special rights that give it certain advantages over common stock. For example, holder of preferred stock get paid first if a company is sold; only after preferred shareholders receive a pre-specified amount (e.g. some multiple of the amount they invested) do the common shareholders receive any money. Also, preferred shareholders typically get a fixed dividend rate, though for early stage companies the dividend payments are often deferred.

While company founders and insiders typically own common stock, venture capital and later stage private equity investors almost always insist on preferred stock. The first funding round, usually by angel investors or early stage VCs, is called Series A, and each subsequent preferred round goes by the next letter of the alphabet. VC firms often specialize in specific rounds. For example, some VCs will only invest in Series A rounds because they feel they can add the most value as a company’s first institutional investor. Other firms may focus on later rounds because they may have a particular competency in helping companies go public.

By the time a company has gotten to Series C, Series D and Series E, it has become a relatively mature business. Finally, when a company goes public, all the preferred stock usually automatically converts to common equity at a pre-specified ratio.

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