Definition
Fundraising is the process of obtaining capital to start, operate, develop, or grow a business. A company may raise capital from founders, customers, individual investors, venture capital funds, strategic investors, lenders, governments, or other sources. The financing structure, terminology, investor requirements, and legal framework can vary by company, stage, market, and jurisdiction.
There is no single global model for startup fundraising. Even the definitions of venture-capital stages such as pre-seed, seed, and early stage vary across countries and data providers; the OECD notes that there is no international standard for classifying investment stages.
How does fundraising work?
Fundraising generally starts with identifying why capital is needed, how much is required, and what type of financing is appropriate.
A typical investor-backed fundraising process involves:
Define the capital requirement — determine how much funding is needed and which milestones it should support.
Choose a financing structure — such as equity, debt, convertible instruments, grants, or founder capital.
Identify suitable capital providers — based on stage, sector, geography, investment criteria, and financing needs.
Present the business — communicate the company, market opportunity, progress, financial position, and use of funds.
Evaluate and negotiate — investors or lenders assess the opportunity and negotiate the relevant economic and legal terms.
Complete due diligence — the parties verify relevant business, financial, legal, technical, and operational information.
Close the financing — agreements are executed and the capital is provided.
The process differs substantially depending on the financing instrument and jurisdiction.
Types of startup fundraising
Bootstrapping
Bootstrapping means building a company primarily with founder resources and/or revenue generated by the business rather than relying on external investment.
Equity financing
Equity financing involves raising capital in exchange for an ownership interest in the company. Venture capital and angel investment are common forms of equity financing.
Debt financing
Debt financing involves borrowing capital that the company is generally obligated to repay, usually with interest. Unlike equity financing, conventional debt does not ordinarily transfer company ownership to the lender.
Other forms of funding
Depending on the company and jurisdiction, fundraising may also involve grants, government programmes, crowdfunding, strategic investment, revenue-based financing, or other forms of capital.
The availability and legal treatment of these options differ significantly across markets.
Funding rounds
Investor-backed startups often raise capital through successive funding rounds, such as pre-seed, seed, Series A, Series B, and later Series rounds. A funding round generally involves raising money from investors on the same or similar terms within a defined period.
Fundraising stages
Startups often describe external equity financing using stages such as:
Pre-seed → Seed → Series A → Series B → Series C → Later-stage financing
These labels should be treated as industry conventions, not universal definitions.
For example, the OECD found substantial differences between how major venture-capital datasets classify pre-seed, seed, and early-stage investment. Some classifications emphasise company development, while others incorporate factors such as company age, previous institutional investment, or round size.
Pre-seed
Generally refers to very early financing used to develop an initial product or business concept, conduct early validation, or establish the foundations of a company.
Seed
Generally associated with financing used to develop the product, establish the business model, test the market, and build early evidence of demand. The precise definition varies across markets.
Series A and beyond
Series A, B, C and subsequent rounds generally describe progressively later stages of venture financing, often associated with increasing commercial validation and scaling. However, the stage label alone does not establish a company's maturity, valuation, traction, or financing structure.
Why does fundraising matter?
Capital can allow a company to:
develop and improve its product
hire employees
acquire customers
expand into new markets
invest in infrastructure
extend its operating runway
reach milestones that enable future growth or financing
However, raising more capital is not automatically better.
The financing source and terms can affect ownership, control, repayment obligations, dilution, governance, investor relationships, and future financing options. The right fundraising strategy therefore depends on the company's circumstances rather than simply maximising the amount raised.
Fundraising vs. funding
These terms are related but different.
Funding refers broadly to capital available to finance an activity or business.
Fundraising refers to the process of obtaining that capital.
For example, a company can have funding from existing revenue or cash reserves without currently conducting a fundraising process.
Fundraising vs. venture capital
Fundraising is the broader activity.
Venture capital is one potential source of funding, generally involving equity investment in companies with significant growth potential. The OECD describes venture capital as equity financing particularly relevant to young, innovative, high-growth companies.
A startup can therefore fundraise without raising venture capital.
Common misconception
Every startup follows the same funding sequence.
No.
A company does not have to progress through every conventional funding stage. Some startups bootstrap for years, some raise a seed round without a pre-seed round, some use debt or grants, and some raise multiple rounds that do not fit neatly into the conventional Series A/B/C progression.
The terminology itself varies across markets and datasets, which is why funding-stage labels should be interpreted in context.
