Startup Street Explainer: How Series Funding Works

Over the years, as India’s startup ecosystem has grown, news of the funding has become very common.

In the past couple of months, InsuranceDekho raised a large $150 million Series A round. FreshToHome also raised over $100 million in Series D funding. But what exactly does it mean when a company raises Series A/B/C/D funding?

These are simply names given to subsequent rounds of funds raised by a company, according to Shruti Srivastava, an investment director at early-stage venture capital fund Avaana Capital.

She took the analogy of comparing a startup raising money to filling petrol in a car.

"The founders are the drivers, the car is the startup, and the funds are the petrol that is going to get them from point A to point B. At which point, if the founders are not generating petrol of their own, they'll need to add more to get from point B to point C."

However, over the last couple of years, Srivastava said that the conventional funding market has become a little distorted. "The traditional definition of seed series A and B has broken down. So the last few years should be seen more as an aberration than a rule."

The distortion that Srivastava spoke about refers to the funding boom for startups during the pandemic, with tech valuations booming amid restrictions on physical movement across the world and the availability of plenty of capital due to lower interest rates.

Since the pandemic, tech valuations have fallen again amid rate hikes and macro uncertainties such as rising inflation, a potential recession, and the Russia-Ukraine war