Series A Financing: What It Is and How to Secure It?

Table of Contents

• What is Series A Financing?
• Needs for Series A Financing
• Action for Series A Financing
• Benefits of Series A Financing
• Challenges of Series A Financing
• How to Secure Series A Financing?
• Need Help?

Series A financing is a level of investment in a startup subsequent to initial seed capital, normally drawing investments in the millions if not tens of millions of dollars.

A startup will generally attract this financing level only after it has demonstrated a viable business model with robust growth potential.

Series A investments are typically used to catalyze additional growth in startups; especially in the areas of hiring, product research, and development, advertising, increasing inventory or equipment, and other long-term goals.

What is Series A Financing?

Series A financing is a type of equity financing that is used to raise capital for early-stage startups.

It is usually the first institutional round of funding, after a seed round, and is typically used to help startups scale their operations, expand their team, and invest in research and development.

In exchange for funding, investors receive shares in the company, which gives them an ownership stake.

The valuation of the company is established during the Series A financing round, which can range from several million dollars to tens of millions of dollars, depending on the startup’s potential and the investor’s confidence in its growth prospects.

Needs for Series A Financing

When startups raise additional capital through Series A financing, they will typically do so in exchange for a significant share of equity in the company.

As a result, the startup may need to amend its articles of incorporation in order to create additional shares to allocate to Series A investors.

The new shares issued to Series A investors are typically in the form of Preferred Stock.

Since the stock received in exchange for the investment is frequently Preferred Stock which will convert to Common Stock upon a future financing, merger, or Initial Public Offering; there will also need to be an equal amount of corresponding Common Stock available in proportion to the amount of issued and outstanding Series A Preferred Stock.

Action for Series A Financing

So, the company may need to amend the articles of incorporation to create both a sufficient number of Preferred and Common Shares that will be available upon the future conversion of the Series A Preferred Shares.

To determine how many additional shares must be created, if any, the startup will need to consult a highly detail-oriented corporate attorney.

This attorney will formulate a Pro Forma Cap Table that accounts for the Series A investment(s). This is some of the most complex and detail-intensive work that attorneys can partake in, so, it is especially important to be selective about the counsel that you choose.

Benefits of Series A Financing

1. Growth Opportunities: Series A financing provides startups with the capital they need to grow and scale their operations. This can enable startups to expand their team, develop new products and services, and enter new markets.
2. Attracting Talent: Series A financing can help startups attract top talent by providing them with the resources they need to grow their team and offer competitive compensation packages.
3. Validation: The fact that a startup has secured Series A financing can serve as a validation of its potential and growth prospects, which can attract additional investors and customers.

Challenges of Series A Financing

1. High Expectations: With Series A financing, investors are typically looking for a significant return on their investment. This can put pressure on startups to achieve rapid growth and profitability.
2. Dilution: Series A financing involves giving up a portion of the company’s ownership in exchange for funding, which can dilute the founding team’s ownership stake.
3. Competition: Series A financing is highly competitive, with many startups vying for the attention of investors. This can make it difficult for startups to stand out and secure funding.

How to Secure Series A Financing?

1. Develop a Strong Business Plan: A strong business plan is essential for securing Series A financing. This should include a clear description of your market opportunity, a detailed analysis of your target market, and a solid growth strategy.
2. Build a Strong Team: Investors are looking for startups that have a strong team with a track record of success. You should focus on building a team with the skills and experience necessary to execute your business plan.
3. Demonstrate Traction: Investors want to see that your startup has traction and is gaining momentum. This can include metrics such as revenue growth, customer acquisition, and user engagement.
4. Network with Investors: Networking with investors can help you build relationships and gain access to funding opportunities. You can attend industry events, join startup accelerators, and seek out introductions from other entrepreneurs and investors.

Need Help?

The sophisticated attorneys at Sutter Law are experienced with Series A financings, drafting Pro Formas, and amending articles of incorporation, if necessary. Contact Sutter Law today so that we can answer your questions regarding your Series A financing and alleviate any concerns you might have.