Starting a company takes work and sales savvy. You must have enough funds and resources to scale your operations, expand your market, and develop your products or services. With enough funding, expansion or scaling would be possible, and the answer to this funding dilemma is Series A funding.
What Is Series A Funding?
Series A funding is an equity-based financing that is a crucial stage in the life cycle of a startup company. It is one of the early stages of fundraising for established businesses, where a company seeks to raise capital to scale its operations, develop its products or services, and expand its market presence. It usually occurs after the seed funding stage, where initial money is raised to establish a startup business concept and develop a minimum viable product (MVP). MVPs are crucial for getting the ball rolling successfully on most startups, especially if they are not bootstrapped and require early investors.
According to data in 2021, the funding amount ranges from $3 million to $18 million and more. The funding amount usually depends on the due diligence and valuation process. The funding usually comes from venture capital firms, with participation from angel investors or strategic investors in the 2023 marketplace.
Venture capital firms are private funds that invest in rapidly growing companies for at least ten years and then exit afterwards. Angel Investors are generally high-net-worth individuals who invest their money directly in emerging businesses. Most angel investors are accredited, and many are current or former entrepreneurs. Strategic Investors, or corporate venture capital (CVC), is usually a department or a separate subsidiary of a large operating company. They typically invest intending to gain strategic advantages from the partnership.
How It Works
As a business owner or future entrepreneur, your company must undergo due diligence and a valuation process before you can even have the funding you need in the Series A funding.
Due diligence is the investigation, audit, or review performed to confirm facts or details of a potential deal or investment opportunity brought up during an investment process. Investors conduct thorough due diligence to assess the company's potential, market opportunity, business model, management, financials and share ownership. This evaluation helps investors determine the viability and growth prospects of the startup before making an investment decision.
The Valuation process refers to the process of evaluating and determining the economic value of a business or company. Your company will be assessed based on the following criteria:
- Progress made using their seed capital
- Efficiency and quality of their management team
- Proof of their business concept and ability to execute it
- Validation of solving problems or addressing needs with differentiation
- Market size and scalability
- Financial governance
- Business risks
After these processes, the exact amount for the funding will be provided along with the equity the investors will receive in exchange for the financing.
The Significance Of Series A Funding
The main objective of this funding is to ensure that the company continues to grow and execute its business model effectively and to attract additional investors for future rounds of financing to take the company to a higher level. This is also why it is so significant in the funding lifecycle of a startup to the point that it becomes a critical milestone. Here are a few of its significance:
• Series A funding provides the necessary capital for the company to scale its operations, such as acquiring top talents, increasing production capacity to meet customer demands and expanding the market.
• It enables companies to invest in research and development, improve technology to develop products further or enhance services.
• It helps validate the business, thus making a company more attractive to investors and customers. This would eventually lead to access to valuable networks and industry expertise to further enhance the startup's chances of success.
• Lastly, having Series A funding opens up the opportunity for further funding rounds like Series B, C and more.
Seed Funding vs Series A Funding
With the above difference, you can understand why Series A funding is a critical milestone for a starting company. With the Series A funding, the company is now ready to transition from the early stages of development to a more mature and scalable business.
Tips To Prepare For A Series A Funding
As a business owner or a new entrepreneur, you must know how to prepare a Series A Funding Pitch. Here are a few steps you can follow to help secure early stage funding:
1. Create A List Of Suitable Investors
You must prepare a list of possible target investors with the funds for the investment, engages in Series A funding and be related to the industry you work in.
2. Prepare Needed Paperwork For Due Diligence
During due diligence and valuation, investors may want to check your financial records and other paperwork related to the company, like Intellectual property and trademarks, list of shareholders and the agreements, and corporate and legal structures. It is better to have it ready.
3. Reach Out To The Investors
You should reach out to the investors at the end of your list first to practice your pitch and learn from the mistakes and questions asked during your meeting with the investors. This will help you improve and guide you when you meet with your top prospects over potential funds.
4. Weigh Your Options
If you have received offers from different venture capitals, make sure to think of them carefully. You should ensure that your fund goals and objectives align with that of the venture capital firm you chose.
The Bottom Line On Business Funding
When it comes to business, capital and funds are very important. This ensures your company stays in the game and can flourish in the competitive business arena. Series A funding is an excellent way of making your business achieve greater heights, as it will help with scaling the business and opening up opportunities for higher funding stages that will help improve your business connection.
