How to Prepare Your Startup for Series A Funding

Series A is a funding round that typically succeeds “seed funding” and “angel investing.” It offers external investors the chance to inject capital into a burgeoning company in return for equity or partial ownership. 

Series A round is a distinct fundraising event. The terminology originates from the series of stock issued by the company seeking capital.The preferred stock that is offered to investors at this stage gives rise to the phrase. Having a strategy for creating a business model that will yield long-term profit is crucial in this phase.

This round typically raises between $2 million and $15 million, but this amount varies depending on a number of factors. The average Series A funding amount from January 1 to May 29 of 2023 was $22 million.

Let’s take a look from investors’s perspective

Investors aren't simply searching for exceptional ideas in Series A investment. Instead, they're searching for businesses with innovative ideas and a solid plan for turning those ideas into lucrative ventures. Due to this, companies receiving Series A capital are frequently valued (pre-money) at up to $50 million.

It's also typical for investors to participate at this point in a slightly more political process. A small number of venture capital firms frequently take the lead. In actuality, one investor may act as an "anchor." A company may find it simpler to draw in more investors once it has attracted a first investor. At this point, angel investors also make investments, but they often have less of an impact than they did during the seed funding phase.

How to Prepare Your Startup for Series A Funding

1. Ascertain that a company is prepared for fundraising

To determine whether your firm is suitable for a Series A, you should understand more about what venture funds look for and what the Series A standards are. When determining whether a firm is ready for its first round of investment, investors consider a variety of factors. Revenue, unit economics, proof of business model, systems ready to allow efficient growth, product/market fit, customer acquisition strategy and success, and team quality are examples of these factors.

2. Timing is Key

Securing Series A funding isn’t just about preparation, but also timing. Avoid fundraising in November and December as it can be challenging. Identify when your business could most benefit from investment. Fundraising is time-consuming in the current economy, so anticipate a realistic timeline. Start the process 7-8 months before you plan to secure Series A funding to facilitate growth during crucial periods.

3. Leverage Networks

Acquiring seed funding is generally less challenging than Series A funding. Prior to initiating your Series A fundraising, leverage your network and establish authentic connections. This can facilitate investor meetings. Utilize your second-degree networks, such as friends and family, who may know potential investors. This approach often yields positive results. Over time, promoting your business through your network or via PR and marketing can be beneficial.

4. Craft a Strong Pitch

Attending numerous meetups is crucial. Seek advice from founders who’ve successfully raised initial funding. Meet the investors on your list that aren’t very important first, their questions and feedback can refine your pitch. Treat your pitch like a product, continually improving it until it’s outstanding.

5. Prepare Documentation

To expedite your deal closure, ensure all due diligence paperwork is prepared. Verify your company’s legal documents and compliance are current. Compile records regarding employees, previous financing, company structure, client contracts, intellectual property, cap table, etc. These documents should be organized and ready for review by the investor’s legal counsel or due diligence team.

6. Find the Right Investor

Encouraging competition among investors can be beneficial. Aim to synchronize your discussions with all potential investors. While challenging, this strategy could lead to improved prices and terms. Evaluate all proposals and finalize the deal with the investor who aligns best with your company’s needs.

7. Close the Deal

Before finalizing the deal, it’s crucial to consult with your team. Even if the offer doesn’t meet your initial expectations, securing investment is a significant achievement not all companies experience. Discuss all investment-related aspects with your investor to prevent future disputes. Consider engaging a lawyer to ensure clarity on all legal paperwork and formalities.

8. Business Valuation

Accurate business valuation is crucial for fundraising. Investors first scrutinize business value and sales. Hiring a valuation company can streamline the valuation process, making fundraising quicker and easier. Business valuation involves various factors that must be accurately calculated to avoid errors, which could hinder Series A funding. Precise documentation and valuation can increase the likelihood of securing the same investors for future funding stages.

Conclusion

Securing Series A funding is a significant milestone not every company gets to experience. So, if you’re ready to take this step, consider booking a consultation to get Series A-ready.

References: 

https://www.investopedia.com/articles/personal-finance/102015/series-b-c-funding-what-it-all-means-and-how-it-works.asp