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As an entrepreneur, you may have raised capital for the first time as seed fund which was invested by friends, family, or an Angel Investor. The funds served their purpose in helping you with R&D, proof-of-concept, testing, and salaries of the team. After having achieved the development milestones and proof-of-concept, it is time to attract investors for the next round of funding.
Series A funding is the first round of institutional funding that could be led by one or more investors. Statistics indicate that odds in favour of getting the seed funding are 1:40, whereas in favour of Series A funding are 1:400. Well, if that may seem difficult, you are absolutely right. However, it is crucial for your startup to not just secure the Series A funding, but do it at the right time.
Series A funding is “buyer’s market,” and investors have the power to decline investment to companies. The Series A round of funding sees a company raise anywhere in between $2 million to $5 million against 15-25 percent of the enterprise. The successful acquisition of Series A funding will ensure that the project is completed, technology risks are removed, the revenue stream is in place, and the company is ready for the larger Series B funding.
After knowing all about Series A funding, it should be entirely clear the getting a Series A funding is not a cakewalk, but not impossible either. You need a well-chalked out strategy to ensure that you are fully prepared. Let us share some insider tips to help you in the process.
As a founder, you should be aware of all the parameters that VCs use to evaluate a startup. Usually, VCs look for validation of the idea, traction, customer acquisition, the final product, the team, and management system. Apart from this, VCs also take into account stage of your startup, market space, location, and target equity.
Unlike the seed stage, investors are more concerned about the potential to scale the business. Even though you have a core team in place, prepare a plan for hiring a quality team and expanding it in the coming years.
Invest substantial amount of time in finding a lead investor who complements your business. As you grow, advice will be as valuable as money. The lead investor should have knowledge and contacts in your space.
Even after VCs have agreed to invest in your startup, the actual legal process is a lengthy one. It can take anywhere from 3-6 months to complete the paperwork. You need to be ready with a lawyer and the required paperwork to expedite the process.
It is paramount to get the deal terms right and in line with your business goals. Even though you are keen to secure the first round of venture funding, you need to remember that closing the deal is not the only target. Focus on the terms of this round as it will serve as a foundation for all your future rounds of financing.
While every day dozens of startups secure funding, you need to accept the fact that many people will say no. You will have to start learning from that experience and analyse what went wrong. Keep making changes until you to secure Series A funding in accordance with your business goals.