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Series A Funding: Quick-Start Guide to Raising your Series A Round

As your startup begins to gain traction, you’ll likely start thinking about how to raise money to continue growing. One option is to pursue Series A funding.

 

The mean Series A funding round has increased to $23.1 million in 2022, up from $22.2 million in 2021.

 

Mean and median of Series A funding round

 

However, according to Michael Kim from Cendana Capital, “the best-in-class Series A deal was raising around $20 million at a post-money valuation of $120 million, but recently, those round sizes and valuations have tumbled to about $10 million and $50 million, respectively.” This means that while the average deal is getting larger, there are still plenty of smaller deals being done.

 

What is Series A Funding?

Series A funding is the first major round of funding for a startup. It typically follows a seed round, in which the company raises smaller amounts of money from family, friends, and angel investors. It’s succeeded by a Series B funding round.

 

The Series A round is when a startup begins to raise money from institutional investors, such as venture capitalists. The goal of this round is to raise enough money to grow the company and get it to a point where it is ready to scale.

 

To attract these institutional investors, startups need to have a clear plan for using the money and generating a return on investment. They also need a solid team and some early traction to show that their business is viable.

 

Use the Confluence.VC investor database to find targeted lists of Series A investors.

 

When Is a Company Ready for a Series A?

There is no one-size-fits-all answer for when a company is ready to raise a Series A. Companies should think about introducing the Series A funding program as soon as their technology or business services have reached a mature stage.

 

There are some common indicators that a company is getting close to this stage.

 

The first is early traction. This could be in the form of revenue, user growth, or engagement. Startups need to show that their product or service is resonating with users and that there is a real demand for it.

 

The second indicator is a strong team. Series A investors will want to see that the company has a solid management team in place that is capable of executing its vision.

 

The third indicator is a clear plan for how the company will use the funding. Investors want to see that companies have a clear idea of what they need the money for and how it will help them grow.

 

How to Prepare for Series A Funding

Many founders make the mistake of rushing into a Series A funding round without being adequately prepared. This can lead to several problems, such as:

 

  • Overvaluing the company, which can make it difficult to raise money at a later stage
  • Not having a clear plan for how to use the funding, which can lead to wasteful spending
  • Not having a solid team in place, which can jeopardize the company’s ability to execute its vision

 

To avoid these problems, it’s important to take the time to prepare for a Series A funding round.

 

First, focus on building your product or service and get it to a point where it is ready for mass-market adoption. If you’re still testing demand, we recommend validating through simple no-code products before spending money on additional engineering resources.. This means ensuring that it is high quality and solves a real problem for users.

 

The second is to grow your user base and generate some early traction. This will show investors that people are actually using your product or service and that there is a real demand for it.

 

The third is to put together a strong team. This means finding individuals with the right skills and experience to help you execute your vision.

 

Finally, you need to develop a clear plan for using the funding. This should include a detailed budget, KPIs, and milestones you want to achieve.

 

Who invests in Series A companies?

Series A companies are more established businesses, and this makes this stage of company more investable to a wider range of institutional investors. Here are a few types of investors that invest in Series A companies:

 

Early Stage VCs 

These are the most popular types of Series A investors. 

 

These types of investors can write large checks, introduce founders to their portfolio, and offer strategic advice based on what they’ve observed investing in similar companies.

 

Check out targeted list of early stage VCs in Confluence.VC.

 

Corporate VCs

These investors make strategic investments into companies that have clear synergies with the corporation they work under.

 

These types of investors can offer strategic advantages to startups through distribution advantages, and startups that partner with corporate VCs are far more likely to be seen as acquisition targets.

 

Check out targeted lists of corporate VCs in Confluence.VC.

 

Growth equity investors

These investors invest in high-growth companies with stronger odds of a successful exit.

 

These types of investors can typically write larger checks, and they can help in other ways such as capital connections, customer introductions, and strategic advice.

 

Check out targeted lists of growth equity investors in Confluence.VC.

 

Family office investors

Family office investors have a different process compared to traditional funds; instead of having to convince multiple people to invest, you often have to convince one member of the family.

 

These investors have huge wallets, and they can be massive resources if you partner with the right one.

 

Check out 67 family office investors in Confluence.VC.

 

How to Make Series A Funding Successful

“The venture capital business is 100% a game of outliers; it’s extreme exceptions.”

–Marc Andreessen

 

Series A funding is a make-or-break moment for many startups. It’s important to remember that not every company will be successful in this round. In fact, most seed funded companies will fail.

 

Start-up's survival curve in the US

 

However, there are some things that you can do to increase your chances of success.

 

Timing 

For example, the holiday months, November and December, tend to be slow for venture capital financing. This means you may have a better chance of success if you wait to pitch your company until after the holidays.

 

It is recommended to date your fundraising to end in the middle of the summer.

 

Join an accelerator program

Startup accelerators are typically mentor-based programs, meaning that entrepreneurs have access to a network of experienced mentors who can help them navigate the challenges of raising Series A funding.

 

Use the Confluence.VC investor database to find the right investors for your business.

 

Networking is vital

It’s important to remember that VCs are people too. They like to invest in companies that they have a personal connection to. Try to connect with as many VCs as possible and build relationships with them.

 

Leverage your network

Acquiring series investments (Series A funding, Series B funding, and Series C funding) is not easy.

 

Getting seed capital is easier because it’s easier to raise smaller amounts of money. But as the amount of money you need to raise increases, so does the difficulty.

 

That’s why it’s important to leverage your network. If you know someone who knows a VC or angel investor, ask for an introduction.

 

What Are the Terms of Series A Financing?

In a Series A financing round, investors typically invest between $2 million and $15 million in the company. The exact amount will depend on the company’s development stage, the market size, and the company’s growth potential.

 

In exchange for their investment, investors or venture capital firms will usually receive common stock or preferred stock in the company.

 

Common stock gives investors the right to vote on corporate matters, such as the election of directors, and to receive dividends if the company is profitable. Preferred stock gives investors the right to receive a certain percentage of any future profits, as well as preference, in the event that the company is sold or liquidated.

 

The terms of the financing will also include a valuation cap, which is the maximum value that the company can be sold for without the permission of the investors. This protects the investors if the company is sold for a much higher price than they paid for their shares.

 

Finally, the financing agreement will include a provision that allows the investors to convert their shares into common stock if the company goes public or is sold. This provision is known as a “liquidation preference.” It ensures that the investors will get their money back first in the event of a sale or liquidation.

 

What Are Some Things to Avoid During a Series A?

It’s easy to make mistakes when you’re flush with cash. Here are some things to avoid when raising a Series A.

 

Don’t overspend

It’s important to be mindful of your burn rate, which is the rate at which you spend money. If you are not careful, you can easily burn through your funding and find yourself in a difficult situation.

 

Don’t underestimate the importance of sales

Many startups focus too much on product development and not enough on sales. It’s important to remember that you need to generate revenue to survive.

 

Don’t forget about your investors

Once you’ve raised money, it’s important to keep your investors updated on your progress. They will want to know how you are using their money and how the company is doing.

 

Don’t neglect your other stakeholders

In addition to your investors, other stakeholders, such as employees, customers, and partners, are important to your company’s success. Make sure you are keeping them happy and engaged.

 

Don’t forget about your long-term goals

It’s easy to get caught up in the day-to-day of running a startup. But it’s important to remember your long-term goals and stay focused on them.

 

Bottom line

Not many startups are successful in acquiring Series A funding or even reaching the stage where they can try. It’s a more challenging and competitive process than seed funding. If you can get through it, it can be a massive boost for your company. 

 

Just remember to avoid some of the common mistakes that startups make. And always keep your long-term goals in mind.

 

To learn more about other terms commonly used in venture capital, check out our complete VC Glossary.

 

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