Series A funding is the initial investment given by venture capitalist (VC) firms to a startup after it has shown good initial progress and development. This stage of funding comes after seed funding and angel investors and it is when your company is already somewhat successful.
When a privately owned startup of any kind has shown in its opening months or years that it has the potential to grow and generate more revenue it will look for Series A funding. Venture Capitalist firms provide the money to companies who are generating revenue but are in the pre-profit stage, this funding can often help them grow towards their profit margin.
Getting Series A funding allows a startup who has potential to grow but not the funds, the money in order to finance extra hires, inventories, equipment and more. With a viable business model, startups can gain Series A funding that can help them truly make it to the next stage in their progress.
Series A funding works in such a way that to receive the funds, the VCs or investors that are providing the funds hand these over by purchasing the startup’s shares. Often these Series A funding contracts will have anti-dilution clauses and startups usually will provide preferred shares which means that their investors will not have voting rights but will still own a large percentage of the company.
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What is the Objective of Series A Funding?
The most important objective of Series A funding is to allow the company or startup to continue growing in the immediate future. Many startups would not be able to continue funding their operation if it is not for Series A funding. Not only that but Series A funding allows these startups to expand and generate more revenue than they would have been able to do without the funds.
Often in order to secure Series A funding, startups will have to show the exact places that the funding will be spent and what goals they are trying to reach with the money that has been brought in. Attracting new talent to the company is also usually a big objective at this stage of funding.
Series A funding is just the beginning however, and most importantly, this money does go towards growing the company so that they can get to the stage where they can apply and get Series B funding and then Series C funding.
How Much Money is Series A Funding?
The investment from VC’s or other investors for Series A funding truly depends on a number of factors. Investors will look into the company and will take things such as the valuation of the startup over time and how much it is currently worth into account before deciding how much to invest during Series A funding.
Most Series A investors are looking for large returns on their money and this means that they could be looking for up to 200% or more over a few years. If a VC believes that your company may be worth £100 million within a few years of their investment, they may give £20 million in returns for a 50% share in the company. Providing them with huge profits over a multi-year period.
How Do You Get Series A Funding?
Getting Series A funding can be extremely difficult and a gruelling process. There are many startups that apply for Series A funding but not enough money or VC’s that will provide the investment that they need. This is why to get Series A funding you need a clear business model, can show that you will generate revenue quickly and also can demonstrate how and why the funds will be used in the way that you desire.
VC’s will complete the due diligence process as well as a valuation of your company before making any investment decision. It can take some time for a decision to be made about your startup so making sure that your business is in the best position possible to secure funding before you apply is vital.