What Are the Stages of Venture Capital? A Complete Guide

When people ask, what are the stages of venture capital, they often imagine a straight path from idea to IPO.

But venture capital funding helps startups grow by providing money in different stages, each of which supports startups at various points in their development.

Venture capital firms, like Konvoy, aim for higher returns than what they get from established companies.

Startups usually go through several funding stages: pre-seed, seed, Series A, B, C, and exit.

Knowing venture capital stages before raising capital is important for entrepreneurs who want funding and for investors who need to understand startup financing.

This article explains the 7 stages, describing the company's maturity and the risks investors take at each state.

Why Venture Capital Exists

Venture capital funding is about bridging the gap for startups that have great ideas but don’t have the flow of money to make them happen. 

So, it helps these businesses grow and potentially become leaders in their markets.

Unlike private equity investors, who typically buy into established companies, venture capitalists prefer the early stages where the risks are higher but the potential for big returns is way more exciting. 

We don't just invest in cash flow at these startups; we offer advice, guidance, and connect them to important networks.

That’s why venture capital firms like Konvoy are so influential, they transform vision into reality.

To truly understand how this works, let's break down the venture capital stages, from pre-seed to exit.

The 7 Stages of Venture Capital

Getting a grip on the stages of venture capital is important when it comes to raising money.

Regardless of your industry, whether it’s tech, finance, video games, or others, each stage works in the same way.

1. Pre-seed Stage

• Goal: Confirm the idea and make sure it fits the market.  
• Investors: Friends, family, angel investors, and sometimes small venture capital firms.  
• Common mistake: Failing to handle legal basics, such as intellectual property rights, early on.

At the pre-seed stage, startups are just beginning

That’s why the pre-seed stage is the first level of venture capital funding.

Investors look for a solid business idea, an understanding of how the product fits the market, and partnerships that focus on growth.

However, it’s also crucial to address partnership agreements, copyrights, and other legal matters during the pre-seed stage.

Typical investors at this stage include startup founders, friends and family, and early-stage funds like micro VCs.

2. Seed Stage

• Funding amount: From thousands to a few million dollars.  
• Goal: Create a working product, test it in the market, and get ready to grow.  
• Investors: Angel investors, seed funds, and venture capital firms that focus on startups.

In the seed stage, a startup is usually just an idea or a basic prototype.

Founders may have done some market research and created a minimum viable product (MVP) to test their idea in the real world.

Seed funding typically ranges from a few thousand to a few million dollars.

The amount depends on what the startup needs and the investor's willingness to take risks.

The main goal at this stage is to confirm the business idea and develop a working product that can be tested in the market.

Many startups also start to attract additional investors at this stage.

Common investors in this phase include the startup owner, friends and family, angel investors, and early-stage venture capitalists.

If you want to learn more, Konvoy has a complete article on how to get venture capital funding. It explains strategies for founders.

3. Series A Stage  

• Funding amount: $2M–$15M.
• Goal: Scale operations, build a revenue model, and improve customer acquisition.

• Investors: Larger venture capital firms.

Once a startup shows it has a solid business model and regular customers, it moves to the Series A funding stage.

In a venture funding round, a startup raises money from investors to expand.

During the Series A round, you need a plan for making money over time.

Here, storytelling matters. Having a lot of excited users is great, but you must show how raise capital will profit from your product in the future.

Series A funding usually ranges from $2 million to $15 million, depending on what the company needs and how much it can grow.

4. Series B Stage

• Funding amount: $10M–$50M.
• Goal: Marketing, manufacturing, and team expansion. 
• Investors: Institutional VCs, bigger funds, and sometimes private equity.

After a successful Series A funding round, startups often seek Series B funding to continue their growth.

At this stage, the focus shifts to product manufacturing, marketing, and sales efforts.

To expand, you typically need a much larger investment compared to earlier rounds.

While Series A investors look at your potential, Series B investors care more about your actual performance.

They want clear evidence that your product or service is commercially viable before they invest.

Series B funding usually ranges from $10 million to $50 million or more, depending on your growth goals and market conditions.

5. Series C Stage

• Funding amount: $20M to hundreds of millions.
• Goal: Expand to new markets, develop additional products, or acquire other startups.
• Investors: Late-stage VC firms, hedge funds, and private equity investors. 

When a company reaches the Series C stage, we also refer to it as the expansion stage, because companies are now ready for rapid scaling.

By this point, it has achieved success, and the new funding will help it create new products, enter new markets, and possibly acquire other startups.

Among the stages of venture capital, this is the most important for driving growth.

Funding in Series C can vary widely, from $20 million to hundreds of millions, depending on the company’s growth plans and goals.

At this stage, investors usually include late-stage venture capitalists, private equity firms, hedge funds, and corporate investors who want to invest in fast-growing companies.

6. Later Stages & Growth Rounds

After a Series C funding round, companies may move on to Series D, E, or more rounds. 

These later rounds aim to improve the business model, strengthen financials, and get ready for an IPO or acquisition.

At this point, the line between venture capital investments and private equity blurs. 

Many venture capital firms team up with private equity investors to help support further growth.

7. Exit Stage (IPO or Acquisition)

• IPO (Initial Public Offering): The company lists on the stock exchange, offering shares to the public.
• Acquisition: A larger company acquires the startup, often as part of an expansion stage strategy.

The final stage is when startups deliver returns to their investors.

An IPO, or initial public offering, represents the next step in a company’s funding journey, moving beyond the support of venture capitalists.

It involves making your private company public by selling shares on the open market.

The company can also be acquired by others. 

Famous examples include Microsoft’s $75B acquisition of Activision Blizzard. 

Why Startups Raise Venture Capital

Startups raise venture capital for several important reasons:

First, they need money to develop their technology, hire skilled workers, and market their products. 

Second, venture capital firms offer valuable guidance and share their industry knowledge. 

Third, they connect startups with potential partners and customers. 

Finally, being supported by a well-known VC can help attract more investors, as it boosts the startup's credibility.

Konvoy, for example, invests in gaming startups. 

By offering venture capital funding, we help founders in esports, MOBA games, and blockchain gaming scale.

Venture Capital vs. Private Equity

It's easy to mix up venture capital financing and private equity. While both invest in companies to make a profit, they use different strategies:

1. Venture Capital: This type of investment focuses on early-stage companies, takes on higher risks, and looks for big growth potential.

2. Private Equity: This type targets established companies that have steady cash flow and aims to improve their operations.

If you want to learn more, check out our guide on Venture Capital vs. Private Equity.

Common Mistakes Founders Make

Founders often make mistakes that cost them opportunities when seeking venture capital. 

Here are some common errors we often see:

1. Raising money too soon without proving there is a market for their product.

2. Overvaluing their company in the early stages.

3. Ignoring how their team works together, investors prefer strong teams, not just good ideas.

4. Not attracting other investors because they lack sales or a clear plan.

5. Wasting money and not reaching key goals.

FAQs 

1. What are the main stages of VC funding?

The main stages of venture capital funding are pre-seed, seed stage, Series A, Series B, Series C, growth stage, and exit (IPO or acquisition). 

Each stage shows how developed a startup is and what kind of funding it needs.

2. Why do startups raise capital?

Startups raise venture capital to develop products, grow their businesses, and break into new markets. 

Venture Capital firms also provide helpful guidance and connections.

3. How does venture capital financing differ from private equity?

Venture capital is all about early-stage, high-risk startups, while private equity tends to invest in more established companies that have proven revenue.

4. What is the seed stage of venture capital?

In the seed stage, startups shift from just an idea to creating an MVP. 

They usually get funding from angel investors, seed funds, or early-stage VC firms.

5. What happens in the expansion stage?

During the expansion stage (Series C and beyond), companies use the funding to roll out new products, expand globally, or acquire other businesses. 

This is also when private equity investors often join in.

6. How do venture capital firms attract additional investors?

Venture capital firms bring in more investors by showing strong performance, being open with limited partners, and highlighting promising growth opportunities.

7. How long does it take for venture capital investments to pay off?

Venture capital investments usually take about 7–10 years to pay off, often through IPOs or buyouts.

8. What are common mistakes founders make when raising venture capital?

Some common mistakes include raising funds too soon, misjudging their company’s value, having weak teams, and not clearly defining their market strategy.

9. Can gaming companies benefit from venture capital?

Absolutely. Gaming companies, whether small indie studios or large developers, often seek venture capital to fund new games. 

10. Where can I learn more about venture capital and investing?

You can find out more by subscribing to Konvoy’s newsletter.

In Summary

Understanding the stages of venture capital is important for your startup.

For founders, knowing when and how to raise venture capital can mean the difference between scaling successfully or running out of runway. 

For investors, these stages help assess risk and maximize returns on venture capital investments.

Also, we recommend to take a look at staff augmentation services to boost your startup/company in the first stages of investment.

It helps you know where you are and what kind of investment you are seeking.

If you want to learn more about venture capital, we recommend reading the best books and subscribing to our newsletter for insights into this industry.