Businesses looking for investors should be as careful about who the investors are, and as the investors are about which companies they choose to invest in. Series A funding is finance that is needed by a business that already has a track record. That could be a consistent revenue stream or a loyal customer base.
Post Seed Funding
Series A funding is generally needed once a business is founded and has gone through a seed funding round. They are now ready to scale or monetize their big idea. Choosing the wrong investor could ruin so business, so they must select Series A investors that are a good match.
Having the right Series A investor is also essential because, generally, they are the people that will develop the business with you. They will invest and thus be involved in Series B investments and possibly even source additional investors for Series B, C, and D opportunities.
When you are ready for Series A funding, you are at the point where your focus is on ensuring that your business model generates long-term profits. Series A investments are usually between US$2 million and US$15 million and require a solid strategy for monetizing your excellent ideas.
Generally, because the risk is lower than seed funding, Series A investors come from more traditional VC firms. This means that you need a solid money-making plan if you hope to get any investment. Less than 50% of seed-funded companies go on to Series A funding due to a lack of vision or a vague monetizing strategy.
When looking for Series A investors, you should consider the following:
Your type of business: Series A investors generally like to invest in industries they know because they understand it and the likelihood of your business succeeding or failing. It is also beneficial to you if they have experience in your industry as they will offer you valuable input, advice, and capital.
Your location: Series A investors generally prefer to invest in a geographically close business to better understand the company. Plus, it’s perfect for them to keep a close eye on their growth and investment safety. As a business, an investor that is geographically closer is advantageous because they have more loyalty and commitment to helping a business in their region succeed.
What stage your business is in: The stage of your business determines the type of funding you need. If you are looking for Series A investors, you will be at the stage where you are about to become profitable. Investors tend to specialize in investing in businesses at a particular stage. Series A investors want to see a sound strategy on how you are going to achieve profitability.
The amount of money you need: The investors you approach will depend on the amount of money you need. For example, Angel Investors are usually investing their own capital into your business and will therefore have less to invest than a VC firm or a group of investors.
The amount of equity you will be losing: Unless you have managed to finance your startup personally, you will have had other investors by the time you reach the need for Series A funding. So, before getting more funding and deciding on what equity you can exchange for it, you must evaluate what your existing equity looks like.
You will then be able to decide how much you are willing to give away during the next round. It is crucial to do this to ensure that you don’t lose all your business equity.
What else you need, other than cash: Most entrepreneurs forget that investors, more often than not, have a lot more to contribute to the growth of the business than money. Investors will often also be able to provide invaluable experience and advice and even additional resources that can impact your business. Think teams, experience, contacts, investors can offer more than a mere injection of capital.
When choosing the right Series A investor, you need to look at what else they are bringing to the table.
Investors are partners and collaborators who want to see the business grow and give them a healthy return on their investment. You will be having a relationship with them for at least three years, so they should be people you enjoy working with. In fact, they should be people whose advice and input you are open to. Additionally, they should be people who are as passionate about your business as you are.
Choosing a Series A VC investor that is the right fit is vital to your success, so choose carefully.