Series A Funding
Startup funding is not a one-time activity. Instead, it is a long-drawn process that encompasses many years in the initial life of any startup firm. It is important to realize that the funding of any startup company happens in multiple stages. Up until now, we have understood the pre-seed funding as well as the seed funding process. We also know the objectives of raising funds at these early stages and what are the various types of instruments used. Now, it is time to understand the next stages in the funding process.
It can be said that pre-seed, as well as seed funding, are quite informal in nature. The more formal approach towards startup funding begins with “Series A” funding. In this article, we will have a closer look at what “Series A” funding is.
What is a “Series A” Funding?
As mentioned above, startup financing takes place in several tranches. The “Series A” funding is the first step in the process. Some bootstrapped startups may decide to begin their funding process directly with “Series A” funding. On the other hand, it is common for companies to have raised pre-seed or seed money before they begin their journey towards “Series A” funding.
Startup companies have some kind of proof of concept before they begin soliciting investors for “Series A” funding. This is the round of funding where the valuation of the company reaches a new high.
Another important point to note about “Series A” funding is that a lot of venture capital firms tend to get involved in the financing process at this stage. Prior to this stage, founders do not have proper access to organized capital. This is the stage where big investment banks, private equity funds, and even hedge funds can become the source of such organized capital.
It is important to realize that every startup firm that was able to raise seed funding may not be eligible to raise “Series A” funding. In order to attract investor interest, the company’s product must be able to show significant traction.
Objective of Series A Funding
It is important to realize that even though “Series A” funding is a significant milestone, it still happens in the early days of the existence of the startup organization. The objective of “Series A” funding is not to ensure that the startup captures market share or even goes to market in any way. Most companies that raise “Series A” funding are still in the product development stage.
Hence, the objective of any “Series A” funding tends to be twofold.
- The first objective of the funding is to ensure that the product development is complete. The final product at the end of “Series A” funding must be very close to the one the company intends to finally take to the market.
- The second objective of this funding is to ensure that the startup has enough capital to ensure that they have a formidable team in place. The next stages of the startup journey tend to get challenging. It is for this reason that the firm must ensure that they have the basics in place.
In terms of dollar amount, a “Series A” funding is supposed to provide the startup enough funds to last anywhere between 18 to 24 months. This is the amount of time it generally takes for startup firms to complete product development and have a go-to-market strategy in place.
How is Series A Funding Different From Seed Funding?
Obtaining funding at the seed funding stage can be considered to be relatively easier. This is because at the seed funding stage, only an idea exists and there is no clear roadmap of a product. However, when it comes to “Series A” funding, a clear roadmap is required. Investors would like to know the exact manner in which the funds will be deployed, the goals which the company plans to achieve as well as the metrics which will be used in order to measure the success.
Another important point to note is that investors generally do not do a lot of due diligence at the seed funding stage. The investment is done based more on the experience and gut feel of the investor. The “Series A” funding process can be quite different. This process is largely data-driven.
Investors want to ensure that they have access to the correct data so that they can make an informed decision. This is the reason that the deck which has to be presented for obtaining “Series A” funding has to be top-notch and must provide information about all the aspects of the company which a future investor may want to know about.
Seed funding startups tend to be between the company and individual investors. On the other hand, “Series A” funding is more of a competitive process. Several investors are invited and presentations are made to all of them. Based on further negotiations, the firm may select one or more of these investors.
“Series A” funding can be the most critical stage in the financial life cycle of a startup. This is because once the company has the formal backing of an investor, it is much easier to get even more investors to invest in the firm. This is the stage where any startup firm needs to generate critical momentum which can be used to reach the final objective.
Authorship/Referencing - About the Author(s)
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- Seed Funding - Introduction
- Why is it Difficult to Raise Seed Funding?
- Documents Required for Startup Financing
- How Co-Founders Split Their Equity?
- Proof of Concept
- Minimum Viable Product
- What is Prototyping?
- Asset Light Business Model
- Advantages of Asset Light Business Model
- Disadvantages of Asset Light Business Models
- Cash Burn Rate: The Basics
- Managing the Cash Burn Rate
- Startup Financing and Term Sheets
- Key Terms and Conditions in a Term Sheet of Startup Funding
- Red Flags that Investors Need to Look out for in Term Sheet
- The True Cost of Owning a Property
- Valuation of Early-Stage Startups: The Mindset of Investors
- Pre Money and Post Money Valuation
- Start-Up Valuation: Advanced Concepts
- How Pre-Revenue Companies are Valued?
- Valuation Divergence - Meaning and its Importance
- How Do Option Pools Work?
- What are Capitalization Tables?
- Asset Sale vs. Stock Sale
- Financial Models for Startups
- Key Performance Indicators for Startups
- Restricted Stock Options (RSU’s)
- Veto Rights - Meaning and its Importance
- Financial Benefits of Incubators
- What are Unicorns?
- Why Startup Companies are Staying Private?
- Why Unicorn Companies Fail?
- Building a Startup Team
- Bootstrapping: Meaning and its Advantages
- Disadvantages of Bootstrapping
- Revenue Based Financing
- Convertible Notes and Startup Funding
- Pros and Cons of Convertible Notes
- Simple Agreement for Future Equity (SAFE)
- Keep It Simple Securities (KISS)
- Series A Funding
- Series B Funding
- Series C Financing
- Venture Debt in Startup Funding
- Pros and Cons of Venture Debt
- What is Venture Leasing?
- The Freemium Model - Different Types of Freemium Models
- Pros and Cons of Freemium Model
- Scalability and Startups
- Pros and Cons of Scalable Business Models
- Why Do Start-ups Fail After Receiving Funding?
- Start-ups and Arbitration
- What is a Revenue Model?
- Understanding Investor Focus on Burn Rate
- How Investors Evaluate Start-up Ideas?
- Government Regulations Which Impact Start-Ups
- What is a Start-up Accelerator?
- Managing the Operational Metrics of a Startup
- Different Types of Investors
- The Founder’s Dilemma
- Role of Social Media In Start-Up Funding
- Start-Ups and Public Relations
- Red Flags for Start-Up Investors
- IPO: An Exit Route for Start-Ups
- What is Acqui-Hire?
- How to Build a Start-Up that gets Acquired?
- Legal Issues Faced by Start-up Companies
- Corporate Venturing
- How Reverse Pitching Works?
- Aggregator Business Model
- Marketplace Business Model
- Difference between Aggregator and Marketplace Business Models
- Product as a Service (PaaS)
- Benefits of Product as a Service (PaaS) Model
- Disadvantages of Product as a Service (PaaS) Model
- The Co-Working Business Model
- How Co-Working Spaces Make Money?
- Peer to Peer (P2P) Business Model
- The Instacart Business Model
- The Goodleap Business Model
- The Twitter Story
- How Tesla Reinvented the Automobile Industry?
- How Epic Games Changed the Gaming Industry?
- The SpaceX Success Story
- The Stripe Business Model
- The TikTok Business Model
- Zillow Story - The Real Estate Marketplace
- How Business Cycles Affect Start-Up Companies
- Managing Start-ups During an Economic Downturn