You’re past seed-stage funding, but unless your startup is particularly lucky, that doesn’t mean you’re past needing outside investing to continue your growth. Sure, some businesses can bootstrap. But if you’ve got a vision that you want to bring to life on any kind of timeline, having resources at your disposal makes all the difference.
Enter: your Series A. That means two main differences from your pre-seed and seed funding. First, you can potentially raise a lot more. While the average seed-stage round raised $1.9 million, the average Series A raised three times that.
Secondly, and just as importantly, you’ll need to prove your track record in order to lock that money down. And that means identifying the right time to launch into this effort — and the right steps to take. We can help. Since we’ve had numerous clients successfully raise A rounds, we’ve seen what works. We’ve also seen what doesn’t. So let’s talk about when to raise a Series A, and how to do it.
When it’s time
You don’t want to jump into your A too soon when it would spread your business too thin. But you also don’t want to wait too long. The longer your startup has had to establish itself, the more metrics investors will want to see. And you need all of those metrics to be trending in the right direction to look enticing. All told, time can be your enemy here.
You should position your startup for its A round when more resources would enable you to do measurably more. You essentially need to be in a position where you can show investors how their involvement will directly translate into long-term profit for your business — and consistent returns for them.
The best way to time a Series A is to look at your startup from an investor’s perspective. Can you give them FOMO (fear of missing out)? Ideally, your business should work to raise Series A funding when you have enough metrics to prove that you’re on a good track — but enough untapped promise to pique an investor’s curiosity.
Obviously, this isn’t a hard-and-fast rule. And while there are some more definitive guides out there (e.g., raise Series A at $Xm ARR, when you’re Y months from your cash-out date), you know better than anyone that your startup is unique. Waiting to cross certain milestones could mean missing the window where the promise of your business is still at its most exciting to investors.
Want help timing your Series A? You don’t have to go this alone. As accountants who specialize in supporting tech startups, our team can analyze your business — and where it’s headed — to help you pick the best moment to focus on your A round.
How to raise a Series A
Now, let’s get to brass tacks. While the seed stage was based on a good idea, you’ll need something more concrete in your Series A. Specifically, investors are going to want to know what you’ve been up to. They want to see how you used your pre-seed and seed money to drive direct growth in your number of users, your revenue, or another measurable KPI.
All told, it’s a different ball game here. Fortunately, you can employ some best practices to navigate it.
Don’t head out blindly
Rejection sucks. It’s an inevitable part of fundraising, but you can at least minimize it by identifying investors who are more likely to be interested. This could be groups or individuals who were involved in your seed stage, have been in touch with your business in any way, or who even just said your business concept sounded interesting at a party once.
Sit down and think through anyone who’s given you even the tiniest green light. Then, start there.
Make yourself available
Raising a Series A will probably be something near a full-time effort for you and any co-founders. Delegate what you can and push what you can’t to later dates.
As a general rule of thumb, you should try to clear at least half your work hours for the months you plan to be fundraising. And expect those to be a lot of nights and weekends, too. You want to be where the investors are, and that probably means some social outings.
The Impact on your Cap Table and Dilution
Get your story and metrics dialed
Anyone who’s going to give your company money wants to see two things: that it’s a good idea and that it’s worked so far.
Have metrics ready to share that showcase growth areas. You want to demonstrate traction and be reasonably able to project future growth. In fact, you should speak specifically to how the Series A will be used. Also, if you have any problem spots (say, a high churn rate), develop a narrative that explains why it’s happening and how your company is actively addressing it.
As you work out your metrics, don’t forget that story matters. Investors like a good narrative so don’t get too dry here. Tap back into the passion that led you to found your startup in the first place. Then, breathe that into any presentations and reports you create.
Remember, you’re trying to create FOMO. Show investors how the market is demanding something specific and your startup is positioned to trounce any competition there.
Don’t stop at the first term sheet. Try to get at least one other option so you can compare them.
You might also want to talk to other people who’ve worked with your potential investor and ask them about their experience. Remember, this is someone who’s going to be in your life if you choose to accept their money. Make sure you think you can work with them before you dive in.
Ultimately, raising a Series A is one of the most critical points in any founder’s life with their startup. You understand your business better than anyone. And that means you’re in the best possible position to tell a compelling story that investors can’t stop thinking about.
That said, there are a lot of other to-dos involved in the fundraising process — like building reports and projections — that could drain your creative juices. Or, at least, that could be the case if you try to go it alone. But getting an accounting team involved can free up more of your time while also setting you up for a successful Series A. If you want a team to come alongside you during this important part of your startup’s growth, we’re here.