The Series A Financing is a phase in the raising of capital for the development of a startup. This stage occurs when the company begins its growth, after the initial phase where the seed capital is obtained.
In other words, Series A is one of the financing rounds that a startup carries out in search of investor resources. This round occurs when the company already has a minimum viable product and is ready to generate revenue and grow.
At this point, it is necessary to be clear about some concepts. First, a startup is a recently created company with great potential because its business model is considered scalable (exponential growth). In addition, startups are usually characterized by being innovative firms and linked to the latest advances in technology.
Another concept that we must clarify, and that we mentioned previously, is that of the minimum viable product, commonly called MVP by its name in English (Minimum Viable Product). This refers to the version of a product that incorporates a series of basic features to quickly determine the response of the target audience.
In other words, the MVP seeks to validate, through a kind of test or small-scale prototype, the acceptance of a merchandise. In this way, it is resolved if it is profitable to offer the product in a massive way.
Characteristics of Series A Financing
Among the characteristics of Series A Financing we can highlight:
- Its objective is that the company can obtain the funds to start its growth phase.
- It seeks to lay the foundations for the company to refine its business model and generate long-term benefits.
- The startup already has an MVP, but requires more resources to build an efficient team of managers, and expand the customer base and product offering.
- In this phase of financing, venture capital or risk capital firms gain prominence. These entities (where money is usually raised from wealthy investors) seek to place their capital in small or medium-sized companies, usually startups. This, in exchange for acquiring a stake (shares) in the company in which they are investing.
- Angel investors also participate in this stage, although with less influence. These are individuals with a lot of capital interested in financing innovative business projects with high expected profits. However, such initiatives are also high risk.
- Equity crowdfunding platforms can participate. These are institutions that use the crowdfunding or micro-patronage method. This scheme consists of gathering the capital of numerous individuals through small contributions. Equity crowdfunding differs from other types of crowdfunding in that, in exchange for the financing granted, a participation (shares) in the capital of the company in which it is being invested is obtained.
- There is no standard funding amount expected to be raised at this stage, but sources agree it could be between $2 million and $15 million. Although this may be subject to variation.
- This phase occurs after the seed round and before the Series B financing.
- According to data from Investopedia, less than half of the startups will raise Series A funds. This is because, despite having obtained seed capital, they fail to arouse the interest of more investors.
Here you can find all the relevant information regarding the next series, series B.