Series A Funding – A Complete Guide
Series A funding is the type of equity-based financing that is somewhat similar to seed financing in nature.
When it comes to company expansion, one of the most important factors to consider is money. If you have landed on this page, you must be acquainted with the various phases of startup fundraising. Many entrepreneurs and startup owners look for fundings in order to enhance their sales by improving their marketing, services, packaging, and other aspects of their businesses. This article will provide you with comprehensive information regarding Series A funding.
Series A Funding
Series A funding is the stage of a funding round that comes in when your firm has already established itself in the market and customers have begun to purchase from you. Let us go through this stage in further detail.
Understanding Series A Funding
Series A funding is the type of equity-based financing that is somewhat similar to seed financing in nature. This means that the particular company asks for a specific amount of funds for selling some percentage of its shares to the investor.
How Does Series A Funding Work?
Once the track record of a business is developed, the company starts to opt for Series A funding for further development of their product or overall business sales. Investors review the company’s specifications, including the business valuation, sales, profit margin, and other things. For Series A funding to be successful, it is essential for the business owner to have a business plan that could lead to long-term profit. Investors usually consider investing in a business with great ideas and enthusiastic staff.
How is Series A Funding Structured?
When a venture capital investor buys Series A preferred stock in the United States, it is the first round of preferred stock that the company gives to the investor during the seed or early-stage round. When a company goes public or is sold, Series A preferred stock can often be turned into common stock, which means that it can be bought and sold.
A lot of people read about Series A rounds in the business press and other media that cover the technology industry. This is especially true in Silicon Valley, where a lot of these rounds happen. It’s not just technology startups that need money. Series A funding rounds also happen in non-technology industries and get money from investment banks, corporate investors, angel investors, public agencies, and other groups that get less attention than funding rounds for technology startups.
Why is it Important to Get Series A Funding?
Series A funding is largely utilized to guarantee that a company’s growth is sustained in the long term. Among the common objectives in the Series A round are achieving product development milestones and recruiting new personnel. The goal of a firm at this stage of development is to continue growing its business in order to attract additional investors to future rounds of funding.
Series A financing is characterized as a “buyer’s market”, and investors have the authority to refuse investment opportunities in firms. The Series A round of fundraising sees a firm receive anywhere between $2 million and $5 million in exchange for 15-25 percent of the company’s equity. The successful acquisition of Series A investment will guarantee that the project is finished, technical risks are mitigated, a revenue stream is established, and the firm is prepared to compete for the bigger Series B fundraising round.
How to Raise Series A Funding?
The process of Series A funding requires a few aspects that are needed to be taken into consideration by the business owner. Find below the various steps and factors that we have explained in detail for your better understanding:
Important Considerations Before Raising Series A Funding
In order to commence the process of Series A fundraising, there are numerous elements that you as a fund seeker have to bear in mind. You should be thoroughly informed of all the elements that investors look for in a firm before making an offer. It is also crucial for you to keep aware of your business’s specs and other legal phrases.
- Make Sure a Business is Ready For Fundraising – To figure out if your company is ready for a Series A, you might want to learn more about what venture funds look for and what are the series fund A requirements. There are a lot of things that investors look at when they decide if a company is ready for its first round of funding. These things include revenue, unit economics, proof of business model, systems ready to support efficient scaling, product/market fit, customer acquisition strategy and success, and the quality of the team.
- Choose the Right Moment – Series A funding isn’t just about ensuring that everything is in order. You also need to make sure that you have all of your ducks in a row and you’re making your pitch at the right time. For instance, it gets somewhat hard to raise funds during the months of November and December. Keep an eye on when your business will most likely benefit from getting money from donors. The process of generating funds in today’s economy is time-consuming, so set reasonable expectations for the timeline. It’s important to begin the process at least 7-8 months in advance of when you intend to secure a Series A investment. This will help your business grow during that important season.
- Consider All the Good Networks – Seed money is easier to get than Series A money. Before starting your Series A fundraise, you should use your network and build genuine relationships with people you know. This will make it easier for you to get meetings with investors. Reach out to your friends and family and ask them if they know someone who could help you raise some funds. These second-degree networks are powerful and have good results. In the long run, it is always good to get the word out about your business through your network or through PR and marketing efforts.
- Make a Compelling Pitch – The most important thing is to go to as many meetups as possible. Talk to other founders who have raised money in the first round and get their advice for your pitch. Meet the investors on your list that aren’t very important first. They will ask you important questions and give you valuable feedback that you should use in your pitch before meeting the investors on your very important list. When you make a pitch, treat it like a product and keep working on it until it’s excellent.
- Paperwork and Documentation – Make your deal close faster by having all the paperwork you need for due diligence ready to go. Check to make sure that your company’s legal documents and compliance are up to date. Make sure that your team has put together all records about your employees, past financing, the structure of your company, client contracts, intellectual property, the cap table, and more. The paperwork should be in order and ready for the Investor’s legal counsel or due diligence team to look over.
- Look for the Right Investor – It is a good idea to get investors to compete with each other. Always try to keep your talks with potential investors moving along at the same pace as you. The process may not be easy, but if you do it right, you may be able to negotiate better prices and terms. Consider all the offers and close the deal with the one you think would be the right investor for your company.
- Closing the Deal – Make sure you discuss the offer with your team members before you close the deal. Even if the offer that you have finalized did not go as planned, you should be glad that you were able to acquire the necessary finances from the investors. This is not a moment that every company gets to experience. Talk about all the important factors related to the investment money with your investor to avoid future conflicts. You can also hire a lawyer so that you stay clear about all the paperwork and legal formalities.
- Business Valuation – The proper and accurate valuation of your business is very essential in order to raise necessary funds. Business value and sales are the first elements that investors review upon before starting to think about offering funds to your business. It is a good idea to hire a valuation company that could perform your business’s whole valuation process and make your fundraising process easy and quick. Business valuation consists of different factors that need to be appropriately calculated. There should be no chance of errors as it can be a big disadvantage for your company during the Series A funding process. If your documentation and valuation would be accurate and up to date, then your chances for continuing with the same investors for the next stages of funding will also increase.
What do VCs Look For in Startups
When VCs invest, they look out for businesses with great products and services that have a long-term edge over their competitors. A real problem that a lot of startup businesses haven’t been able to solve yet is what VCs actually look for. To make this simple for you, we must tell you that VCs look for things and services that customers can’t live without, either because they’re so good or because they’re so cheap.
Challenges of Raising Series A
Funding research and development and bringing a product to market are two essential tasks for a startup’s founder. The biggest challenges in raising money are forming alliances and collaborations and locating the finest possible business partners. These tasks consistently prove difficult for startups and entrepreneurs. Here, we will discuss some obstacles you could face throughout a series A investment round.
- Seeking out investment opportunities from suitable sources – Finding investors differs from finding the right investors for your firm. Startups and new enterprises start with optimism, enthusiasm, and promise, but finding finance may destroy the joy. Selecting the best financing option can improve your chances of acquiring cash. Your startup may need many funding sources. Your company’s stage will determine which investors you pursue. Startups must choose between bootstrap, Investment Firms, VCs, and Crowdfunding.
- Demonstrating scalability and long-term viability – Continuous expansion throughout time, with accompanying gains in income and decreases in cost, is the hallmark of a scalable business strategy. Unscalable company concepts have significant fundraising challenges. The business model may be sound, but problems emerge when it’s implemented, and actual results differ from those anticipated. The team’s lack of skill or the complexity of the task is to blame. Hence, matching the correct abilities to the company concept and those with an entrepreneurial spirit is crucial. Conversely, the team members may be great for the project, but better communication between them or the leader might need to improve.
- Creating an engaging pitch deck – The pitch deck is crucial to generating interest in your organization, which should lead to further in-depth talks. As an entrepreneur presenting your firm, you want your presentation to move you to the next stage and get more intensive meetings with investors to close your Series A investment round. Founders must distinguish between pitching clients and investors. You’re attempting to differentiate your company, not sell it. Presenting all of your company traits makes this approach challenging. This is why much of the effort in creating a pitch deck involves finding a method to deliver your key, high-level business facts clearly and without the fluff.
- Negotiating valuation and equity splits – Investors will evaluate your value using many approaches. They have access to a large volume of deals and hence will have a solid grasp on how a value compares to others in the same industry or at a similar stage of growth, thanks to their exposure to many investor decks and presentations. Your stock split tells your partners, team, and investors much about your firm. Equity divides help VCs understand the founding team. Hence, the stock split arrangement may impact financing.
- Balancing growth and burn – Startups often need more money due to rapid expansion. This might be problematic if the organization doesn’t have a revenue and spending strategy. Entrepreneurs should monitor their burn rate and have adequate capital to pay expenditures. When a startup expands, it must rethink its business strategy and processes and change its pricing approach to prove it can grow profitably.
Tips on How to Spend your Series A Funding
Suppose you have a sudden, overwhelming urge to spend all your fundings in unplanned areas of your business. In that case, you must act responsibly and adhere to the spending strategy outlined in your business plan if you want your company to survive its critical early years. Consider the following tips in order to spend your fundings wisely:
- Make a Plan and Evaluate – Take a moment and look over the business plan that you have been making all this time. Go through all the documents and planning techniques that you had worked upon. The same will remind you of how you planned to spend money to start your business. Make sure you pay attention to your cash flow forecast so that you can spend the right amount.
- Invest in Mainstreams of Your Business – The money you’ve been given is quite valuable, and it will be used to support critical aspects of your business. Keep an eye out for parts of your company strategy that need development and make the necessary investments. Try to save little sums of money wherever possible when there are less expensive alternatives.
- Choose the Right Time to Invest – Timely investment is essential in order to get timely results. Investing in the expertise and experience necessary to identify your market, establish key personalities, and build demand is something you should seriously consider doing.
- Grow your Brand – Your brand is something that plays a significant part in the sale of your goods or services, and as a company owner, it is critical that you continue to expand your brand. The best course of action if you don’t have a lot of expertise in brand creation is to seek advice and assistance from an experienced professional.
- Invest in Marketing – Because it never fails to deliver if your product or service is really vital or appealing to clients, marketing is one of the most desirable areas to invest in. It is important to consider your return on investment whenever you are promoting your products or services to the public. More client retention, increased sales, and increased brand recognition are all benefits of investing in marketing, and these benefits are usually well worth during the initial stages of your business.
FAQs on Series A Funding
Many new businesses struggle to secure funding and are often confused on what the different funding stages are. We have compiled a list of the most asked questions regarding Series A Funding to clear up any misunderstandings.
How can startups ensure they are ready for a Series A raise?
You may be ready for Series A fundraising if you have a compelling business strategy, a motivated and competent team, a vast market potential, data on subscriber growth, profitability, and other crucial metrics, and a well-thought-out plan for using their money.
How do founders prepare for a Series A funding round?
To prepare for a series A financing round, founders may do things like fine-tuning their pitch, finalizing their Term Sheet, getting their company valued, and researching and reaching out to potential investors.
How do investors decide how much to invest in a Series A round?
Everything about the investment has to hinge on the company’s value, both now and in the future. Over several years, most investors hope to recover their initial assets, with even more significant returns as a famous goal.
What are some common mistakes startups make when raising Series A?
Many companies fail to raise capital successfully because they need more information, including a thorough knowledge of why they need the money, an elaborate exit strategy, and a detailed plan for utilizing the funds once they have it.
What are the next steps after successfully raising Series A?
Series B financing follows on from Series A investment. Series B money is given to a firm after it has been established with Series A financing but needs additional capital to grow. Before seeking Series B capital, a firm should have found itself in the market.
Secure funding with a business valuation from Eqvista!
To increase your chances of securing Series A Funding for your company, it’s best to have a business valuation done so you can attract more VCs. Thinking about getting a business valuation? Eqvista is glad to help! To learn more about our business valuation services and how our team will help you, please don’t hesitate to contact us and we will guide you throughout the entire process.