Raising a seed round is no mere feat, but making the jump from seed to Series A can be a real hurdle for many startups. In this blog, we will be discussing what a Series A round is and how it fits in with other early-stage rounds, when to time your raise, and tips for preparing your startup for a Series A raise.
What is a Series A?
A Series A round is a financing round that follows a company’s seed round. Usually, it’s a startup’s first significant round of venture capital funding. The “A” traditionally refers to the class of preferred stock investors receive in exchange for their investment. Oftentimes, Series A preferred stock is the first series of stock issued following the common stock and options issued to founders, employees, and angel investors. Purchasing Series A stock allows investors to “get in early” on an idea they believe has merit and the potential for traction.
Where does a Series A fit into other early-stage funding rounds?
Before a Series A round, startups may go through a phase of bootstrapping (also referred to as pre-seed). At this level, a startup is generally just getting off the ground. Research and product development have likely begun but are in the very early stages.
At the seed round stage, a company will have progressed a little more. Seed funding can help push a startup through the early stages of product development and market research before it’s ready for more significant investment.
A Series A round is the natural progression from a seed round as a startup continues to grow and expand. At the Series A stage, startups usually have developed their product and business model and hired critical team members. It is likely to continue to expand product offerings and is preparing to scale. The primary difference between seed and Series A funding is the amount of money raised and the form of ownership the participating investors get. Seed funding can range from tens to hundreds of thousands of dollars, while Series A funding goals are often in the millions.
When to raise Series A
While the progression of funding rounds may seem straight forward, it can be difficult to know when exactly a company is ready to conduct a Series A round. If your financial planning has been sound, you should have a good idea as to when your seed round funds will run out, when you will need to start preparing for a potential Series A, and how much you should be raising. Generally, pursuing a Series A is a logical move for a startup that needs additional funds to continue growth and has established a viable product/business model, identified its product/market fit, and has the structure in place to start scaling once that funding arrives.
Preparing for a Series A raise
Series A is a significant jump from a seed round, and it requires a fair amount of planning and preparation to be successful. In terms of preparation, there are three main areas in which founders should focus their attention:
- Investor engagement & networking
- Team
- Financial planning & metrics
Investor engagement & networking
Once a startup has already acquired its first investors, it can be much easier to raise additional funds in the future. Active engagement with existing shareholders may make them more amenable to follow-on investment in later rounds. It’s also important to try and network to find potential new investors. Your shareholders want you to succeed and are an excellent resource for finding new connections.
Engagement and networking are two processes that can easily fall through the cracks when there are pressing daily responsibilities to manage. To prevent that from happening, it’s important to add some structure to both of these processes so that they become woven into your daily or weekly activities.
Team
At the seed and Series A stage, your team is like the foundation of the house. It may look fine on the outside, but cracks in the foundation can lead to a whole host of issues later on. When investors are looking at a potential investment opportunity, they’re looking at metrics and market potential, but they also want to see a team they believe will be able to weather possible storms.
Financial planning & metrics
When you’re in the throes of building a startup, things can get hectic and disorganized quickly. To save yourself many future headaches, you should be diligently tracking and planning your finances as well as tracking important metrics you will need to be able to present to investors. The metrics you decide to quantify and follow will vary by industry and business model. Though this list is certainly not exhaustive, here are a few to keep in mind:
- Cash
- Burn rate
- Monthly Recurring Revenue (MRR)
- Customer Acquisition Cost (CAC)
- Churn
- Retention
- Revenue
To ensure you’re keeping track of these properly, set a reminder at the interval of your choice to update these metrics.
Final Thoughts
Moving from seed to Series A is a big and exciting step. It may seem like an overwhelming undertaking at first, but if you come prepared, you will be better positioned to succeed in your Series A fundraising.
If you think your startup is ready to raise a seed or Series A round, we’d love to hear about it. Learn more about raising on MicroVentures or apply for an offering here.
