All About Series A funding and How To Get It

Introduction:-

As a young entrepreneur, raising capital for the very first time is mostly a result of seed funding as the investments are generally derived from friends, family, and more especially angel investors.  This funding helps a new entrepreneur with regard to testing, Renovation, and development, Concept proofing, Salaries for the team members, etc. However, after achieving the estimated development milestone, the next stage will be to attract a potential investor for the next round of funding.
 For this reason, Series A funding is considered the second round of institutional funding which can be led by multiple investors. According to the statistics, the ratio of getting seed funding is 1.40 whereas the ratio of getting Series A Funding is 1:400. It may seem impossible to obtain but it is crucial for startups to secure the Series A funding for the needs of the venture at the correct time.

What is Series A Funding?

Series A funding is also as known Series A round Funding or Series A Financing. It is one of the capital-raising stages for a Startup. Generally, it is the second stage of funding of startups as the first stage of startups is venture capital funding.

Series A funding equity-based funding as that seed funding. It clearly means that the company will be securing desired capital from the investors by selling the shares of the company. However, in some cases, Series A funding comes with the provision of anti-dilution.  Generally, startups prefer to issue shares to the investors which does not provide the opportunity to the owner with voting rights.

Further, it may seem quite common among companies to issue convertible preference shares. These preference shares offer the investors the option to convert the preference shares into equity shares or stocks at a pre-estimated value in the future. It is to be noted that returns of the investors in Series A funding are lower can be compared to seed funding. It is also to be noted that equity crowdfunding is a form of Series A funding.

What are the Objectives of Series A Funding?

Series A funding is mainly used to make sure the continuous growth of the venture. One of the most common objectives of Series A Funding includes the achievement of milestones estimated for attracting potential clients and product development. In the aforesaid stage of business development, a startup always wants to continue its growth and focus on how to attract more investors for future funding needs.

In the Series A funding, most investors are venture capitalists. Generally, these firms have the specialty in funding some of the companies at their early stage. However, it is a general rule that capital is provided to the ventures which have already started generating revenues but still are at the stage of pre-profit.

How Does Series A Funding Work for Startups?

The funding process in the Series A funding is basically of formal approach as compared to the seed funding process. Venture capital firms representing a majority of investors in this round of funding basically are of the opinion to finish the due diligence and valuation process prior to taking sort of investment decisions. Hence, the process begins at a very substantial stage in the Series A funding process.

It is to be noted the valuation of a startup is one of the important parts of Series A Funding. In the seed funding, ventures only look forward to securing A capital and accordingly try to provide as much information that can be used to make an effective investment decision.

However, in the case of Series A Funding, the valuation goes included the assessment and identification of the progress made by the venture who is using the seed funding and the efficiency of the said company's management team as well. 

In addition to that, the process of valuations also lays emphasis on how the management of the company is using its resources available and earns profits accordingly. Based on the emphasis and after completion of the valuation process and due diligence, the venture capitalist will ultimately invest in the company.
 

The Importance of Series A Funding:

Series A funding is usually termed as "Market of Buyers". The investors in Series A Funding have the authority to refuse to invest in the companies. In this funding process,  a venture can raise its capital from $2 million to $5 million against 15 to 25 % equity in the organization. A successful Series A funding will help to make sure that the project is completed on time, there will be also the removal of risks associated with technology, the revenues will be generated smoothly and the company will become ready to get Series B funding.
 

The Process to get Series A Funding:

It is to be noted that getting Series A funding is not easy at all. However, it is not impossible as well. To get Series A funding some strategy has to be made and ensure that the startup is fully prepared itself for the pitch. Some of the tips which can help to get Series A funding are discussed below;

Finding a Lead Investor:

Invest a substantial amount of time in research to find a lead investor who is suitable for the business and complements it. With the growth potential, advice will be considered as valuable as that money. Find someone, who will have contacts and knowledge regarding the nature of business and industry.

Plan about building a potential team:

In Series A funding, investors are more keen and concerned about the potential scale of business. Although, having an experienced team, it is advisable to plan to build a qualified team and expand them accordingly.

Evaluation Parameters:

As a founder of the startup, one must be aware of the evaluation parameters that a Venture Capital firm or Venture Capitalist is using or will use to evaluate the startup.  Generally, most Venture Capital tries to validate the traction, customer acquisition, idea, team, management, and most important idea. Apart from this, Venture capitalists also consider the startup stage, location, market space, and equity target.

Deal Terms:

It is highly important that the terms of the deal are right and according to the line of the business goals. Even if the founder wants to secure the first funding, it is to be noted that closing the deal must not be the only target for a startup. It is really very important to focus on the terms of the deal in Series A funding as it is cons considered the foundation of all the future funding rounds for a startup.

There are so many startups that are securing funding, however, there may be cases where investors will say no to investment, and the founder must accept that as well. These refusals will help to analyze what is lacking and what went wrong. This will ultimately provide an opportunity to learn and accordingly changes can be made until getting Series A funding as per the goals of the business.

Focus on the close:

Once a venture capitalist agrees to invest in the startup, that’s not the end of closing a deal; it is to be noted that the legal process for this is a time-consuming and lengthy process. This process may take around 3 to 6 months to finish are the paperwork required. It is advisable to get ready to appoint a lawyer and with all legal papers to expedite the process of funding.