What is Series A Funding?

Series A funding is primarily used to ensure the continued growth of a company. In this stage of development, a company intends to continue the growth of its business to attract more investors to future rounds of financing.

The series A round tends to provide capital to companies that are generating revenue but do not have registered profits yet. Venture capital firms that specialize in young companies tend to be the main investors at this stage. 

Series A funding definition

Series A funding is the second stage of startup funding (after seed funding) and should be considered the first stage of venture capital financing.

Series A funding is equity based, securing capital by selling shares in the company. However, preferred shares are usually issued at this stage, after the common stock and common stock options issued to company founders and angel investors.

In series A rounds, investors typically purchase 10% to 30% of the company, and it is common for firms going through Series A funding rounds to be valued at up to $23 million.

How Series A funding works?

The investors involved in this round come from more traditional venture capital firms and the entire process will be more formal. A select number of venture capital firms will lead the initial push, or a single investor may serve as an «anchor.» 

As the ecosystem is quite small, once a company has secured a first investor it will be easier to attract additional capital. Angel investors also invest at this stage, but they tend to have much less influence in this funding round than they did in the seed funding stage.

Series A funding follows a strictly formal approach and venture capitalists that represent investors in this round of funding will complete the due diligence and valuation process before making an investment decision. 

Valuation includes the identification and assessment of progress made by a company using its seed capital, as well as the efficiency of its management team to use available resources to earn profits in the future.

Investor returns from series A funding are lower than from seed funding, but the preferred shares that they buy can be converted to common stock at a future date (usually pre-determined).

In addition to more conventional methods, equity crowdfunding is becoming an increasingly common way of generating series A funding. Many companies who have successfully obtained seed funding will fail to develop investor interest for the next round: in fact, research shows that fewer than half of seed-funded companies will go on to Series A funds. However, equity crowdfunding is becoming more established, and startups are increasingly raising part of their Series A round online. These blended rounds include a mix of angel investors, strategic investors and customers alongside the traditional offline venture capital investors.

How to achieve Series A funding

Statistics show that while the odds for getting seed funding are 1:40, those for Series A funding are 1:400. It may be difficult, but not impossible.

Private companies can meet venture capital firms and other investors in many ways and at this stage a positive referral from a trusted contact is invaluable. There are also investor conferences and demo days where companies can pitch directly to investor groups. 

Aspects that you should be clear about beforehand are:

Parameters of evaluation: you should be aware of all the parameters that investors use for evaluation. Your management system, customer growth, product and the realization of your idea will all be scrutinized. Your business location, market potential and target equity are also considered. 

Management team: at this stage, investors are more concerned about the potential to scale the business. You might have a great core team in place, but you need to already be preparing to expand and hire more professionalsc for your business in the near future. 

Lead investor: dedicate time to finding the perfect anchor or lead investor for your business. They will have knowledge and contacts that are as valuable as money. 

It is also important to remember that while every day dozens of startups secure funding, many investors will say no to your company. The best way to deal with this is to learn from the experience and make changes until you secure Series A funding that suits your business goals.

The Finnovating challenges platform provides a listing of available challenges that companies can browse to see different opportunities for investment and capital: it is a direct portal into the FinTech ecosystem, connecting you with all types of capital investment.