Most startups, even those who get angel funding or seed-stage funding or investments from accelerators/incubators, are unable to get follow-on funding. Why is Series-A funding so elusive?
The first time that a startup raises capital is normally called a ‘seed round’. Other names include angel round or HNI round. Some even call it a pre-Series A round, but this term usually refers to a small interim fundraising exercise between the seed round and Series A.
1. Be series A ready
If you are looking to raise a Series A, it might be a good idea to get familiar with what venture funds looks for to ascertain if your company is Series A ready. Promising unit economics, revenue, proof of business model, systems ready to support efficient scaling, product/market fit, customer acquisition strategy and success, quality of team are some key factors that are taken generally taken into consideration and it is wise to evaluate where you company stands against these metrics to figure if you are ready for Series A.
Fundraising in the current environment is a time consuming process – be realistic about the timeframe. Make sure you start the process atleast 7-8 months prior to when you want to raise a Series A financing. The deal process has two parts, pre-termsheet and post-termsheet. Underestimating the time required inevitably leads to desperation and will often need to alter your funding strategy to include diverting attention to raise a bridge round to sustain the business.
3. Leverage your network
Seed funding is more plentiful and easier to raise as compared to Series A. Leveraging your network and building genuine relationships before you start your Series A fundraise will make it easier for you to get potential meetings with investors. Reach out to your extended network and request them to reach out to their connections. These second degree network have powerful and favourable outcomes. Spreading word about your business through your network or through PR/marketing initiatives is always helpful.
4. Practice your “Pitch”
The key is to take as many meetings as possible. Speak to other founders who have successfully raised Series A and take their inputs for your pitch. Meet the low priority investors on your list first – they will ask you relevant question and provide you valuable feedback which you should incorporate in your pitch before meeting the top priority investors on your list. Treat the pitch a product – iterate on it until it is great.
5. Create a fundraise momentum
Approaching multiple venture funds at the same time is a good idea to get a competitive dynamic into the process. Try keeping your conversations with interested investors moving along at as close to the same pace as possible. This may not be easy but is if you manage to orchestrate well, you may be able to negotiate from a high bargaining power that generally leads to better valuation and deal terms. Nothing accelerates the process and you landing up a termsheet from one VC – you are likely to get few more.
6. Know the “standard market practice”
Keep yourself up to date with the commonly offered deal terms for a Series A. It is highly possible that the first version of your termsheet you receive is not exactly “founder-friendly”. The strongest line of defence and the most accepted rationale for negotiating such terms is that they are not standard market practice.
7. Get the deal terms right
It is imperative that you ensure that the deal terms for your Series A are right and consistent with the trajectory of your business. The Series A terms will play as a foundation for all future rounds – many of those same terms that you have signed up for in your Series A are likely to carry through to future rounds i.e Series B or Series C – hence important to get them the right the first time itself.
8. Engage a lawyer
If you’re raising venture capital — you need a lawyer who specializes in structuring venture capital financing. A lawyer who has done multiple such deals understands the nuances involved in structuring such rounds both from the perspective of which deal terms are important, what the “standard market practice” is and when to stay firm and when to concede to the investor. This will aid you to close your investment documents faster and more efficiently.
9. Paperwork in place
Shorten your transaction closing time by having all paper work in place for due diligence. Ensure that your company’s legal documentation and compliance is up to date and have your team put together all records relating to employees, past financing, corporate structure and establishment, client contracts, intellectual property, cap table, etc. The paperwork should be organized and ready for review by the Investor appointed legal counsel/diligence team.
10. Raise 10-15% more than budgeted for
Within reason, if you have access to capital and the deal terms including dilution are decent, raise 10-15% more than budgeted as the business initiatives/operations dont always materialise as planned. Raise enough to allow you a fair shot to meet your milestones for the next round of financing so that you can channel all your focus on building the business and scaling it in the right direction. Raising every round of funding post Series A becomes significantly difficult and therefore is time consuming process and highly distracting. Additionally, there is a transaction cost every time you close an additional round.
By Roma Priya – Legal Advisor and Director at Burgeon BizSupport LLP. Roma Priya has successfully guided companies seeking investments across seed, angel- stage and subsequent funding rounds. She has also represented marquee investors (HNI’s, Angel Groups, Funds) who invest in early and growth stage companies.
For Series A, the deck should have five elements: (1) an attention grabber that explains why this company has major potential; (2) the insight you reached during seed that led you to build an unexpectedly compelling hit product that the early customers love; (3) data that shows positive initial trends for your sales, ...
For Series A, the deck should have five elements: (1) an attention grabber that explains why this company has major potential; (2) the insight you reached during seed that led you to build an unexpectedly compelling hit product that the early customers love; (3) data that shows positive initial trends for your sales, ...
One of the most important things Series A investors look for is traction. How you determine whether a company has traction varies widely by context, but relatively small differences can lead to order-of-magnitude differences over even a 12-month time scale.
Series A is the next round of funding after the seed funding. By this point, a startup probably has a working product or service. And it likely has a few employees. Startups can raise an additional round of funding in return for preferred stock.
A Series A often happens after a seed round, but some companies that have bootstrapped their way to success can skip the seed round. You are probably ready for a Series A if: You have compelling metrics (growth, unit economics), have figured out customer acquisition, and are growing rapidly.
Series A funding can be difficult because it also requires a Series A valuation. At the time of Series A funding, the company has to be valued and priced. Thought must go into previous investments, as prior investors will have also purchased the business at a specific valuation.
What Is Series A Funding? The first round after the seed stage is Series A funding. The term gets its name from the preferred stock sold to investors at this stage. In this round, it's important to have a plan for developing a business model that will generate long-term profit.
The amount of money raised in a Series A round can vary widely, but it typically falls between $2 million and $10 million. The valuation of the company at this stage is also highly variable, but it is usually between $5 million and $30 million. So how do investors value a company during a Series A round?
Use our pay calculator to get an estimate based on your industry, funding raised, etc. However, roughly, founders make: Seed: ~$130,000. Series A: $180,000 to $190,000.
How Much Equity Should I Give Up in Series A? In a series A round, founders are advised to give up around 20-25% of equity to investors. These equity investments are often dependent on the kind of startup or business. Some businesses may give up more, while others must give out less equity.
What percentage of startups fail after Series A? If a startup makes it to Series A, about 35% will fail before raising a Series B round. For the 65% of Series A startups that are able to raise capital, this stage typically brings in between $500,000 and $3 million within a period of 12 to 18 months.
After the pre-seed and seed round, series A financing is one of the funding rounds an early stage startup will encounter. By this point, the startup is showing promising growth potential and has achieved great milestones in the process of becoming a well-established business.
As of this month, half of the startups that raised at least $1 million in seed funding in 2018 had gone on to a Series A or post-seed round, according to Crunchbase. For the 2021 cohort, the share is at 24%, and at 6% for the class of 2022.
How Much Equity Should I Give Up in Series A? In a series A round, founders are advised to give up around 20-25% of equity to investors. These equity investments are often dependent on the kind of startup or business. Some businesses may give up more, while others must give out less equity.
The startup and venture world are filled with various rules of thumb; some helpful, some less so. One of the most common ones has been some variant of: ~$1 million in annual recurring revenue (ARR) is what you need for a successful Series A in a SaaS business.
The study titled “Series A Landscape Report” said, “Out of the over 2,500 startups that had raised seed funding between 2015-2022, only 29% (i.e., 734 companies) managed to raise a Series A round (typically the first round of institutional venture capital funding).”
Introduction: My name is Francesca Jacobs Ret, I am a innocent, super, beautiful, charming, lucky, gentle, clever person who loves writing and wants to share my knowledge and understanding with you.
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