Series A Funding, Series B Funding and More - The Ultimate Guide

Series A Funding, Series B Funding and More - The Ultimate Guide

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What is Series A Funding?

Wikipedia defines Series A funding as the name typically given to a company's first significant round of venture capital financing. The name "Series A" refers to the class of preferred stock sold to investors in exchange for their investment. It is usually the first series of stock after the common stock and common stock options issued to company founders, employees, friends and family and angel investors. 

You may still be asking - how does Series A funding vs. Series B funding differ? What are the stages of startup funding? What defines each round of investment funding? How much are these funding rounds on average? What are some trends to be aware of? Finally, how do you raise Series A funding?

If you've ever asked any of these questions and would like funding rounds explained, this guide and the related content below is for you. If you're also interested tracking all funding rounds in the U.S. in real-time and exporting lists of recently funded startups, you can learn more about Fundz here.

Video: Series A Funding & The Startup Funding Lifecycle Explained

Series A Funding Video Explainer

 

 

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PART 1: FACTS, DEFINITIONS & TRENDS RELATED TO SERIES A FUNDING, SEED FUNDING & OTHER FUNDING ROUNDS

Facts on the Series A Funding and Seed Funding Round Environment in 2018

Statistics on Series A Funding Rounds in the U.S. So Far in 2019

The New "Pre-Seed" Funding Round

What is Seed Funding?

Who Invests in a Seed Funding Round?

What is a Series A Funding Round?

Who Invests in a Series A Funding Round? 

What is a Series B Funding Round?

Who Invests in a Series B Funding Round? 

Series C Funding Rounds and More

PART 2: HOW TO GET SERIES A FUNDING 

How to get Series A Funding   

 

Facts on the Series A Funding & Seed Funding Round Environment in 2018 

  • In Q1, 2018, $1.6B was deployed into 727 seed companies - the15th consecutive quarter that more than $1.5B was invested into angel/seed deals. 
  • The median deal size for seed companies is now $2.2M, more than twice what it was in 2010
  • The median post-money valuation of seed funded companies has grown to $10.7 million.
  • The median age for a company raising seed funds is now around 3 years - a new high.
  • In 2010, under 10% of seed companies at the time of their raise were generating revenue; In 2017 over 50% of seed companies at the time of their raise were generating revenue. 
  • A higher percentage of seed deals are $5M — $10M size range, nearly 1 in every 10 seed deals in the first quarter of the year fell within this range.
  • Increasing valuations and deal sizes at the angel & seed stages have led to more "pre-seed" funding rounds. 
  • The average Series A Funding Round is now around $10.5 million.
  • The median valuation of companies which raised early stage financing, including Series A and some Series B, is around $20 million.
  • The average time between financing rounds now stands at 1.5 years.
  • VC Valuations across all funding round series continue to increase.

Source: Pitchbook 

Statistics on Series A Funding Rounds in the U.S. So Far in 2019

  • As of 4/6/19, the average Series A Funding Round in the U.S. is $10.7 million (USD).
  • As of 4/6/19, the standard deviation for Series A Funding Rounds in the U.S. is $5.12 million. 
  • 68% of Series A Rounds in the U.S. have been between $5.58 million and $15.89 million.

Source: Fundz

The New Pre-Seed Funding Round

When businesses first start out, the money typically comes from the Founders' personal savings, friends and family, credit cards, etc. A typical path is then seed funding, Series A, Series B, etc.

With the number of seed investments now less than in 2015, but now considerably higher in average deal dollar size, a new type of pre-seed round has emerged as a type of bridge for some companies. In this case, a founding team (often pre-product) receive a small investment to hit one or more of the milestones they’ll need to ready themselves for “true” seed investment: from hiring a critical team member to developing a prototype product.

Led by many of the same investors that lead seed rounds, pre-seed financing is often used to bridge the gap to the next round.

Average Funding Amount: <$1 million

Typical Company Valuation: $1–3 million

Common Investors: Friends and family, early-stage angels, startup accelerators

Source: Medium

What is Seed Funding?

Seed funding is the first outside investment in a company in exchange for equity. The amount varies widely from just tens of thousands of dollars to up to around $2 million. The equity given up in exchange for the seed funding is generally in the range of 10% - 25%.

Who Invests in a Seed Funding Round?

Some major sources of seed funding include:

  1. Angel Investors
  2. Accelerators like YCombinator and TechStars
  3. Micro-VC's
  4. Seed Funds from large corporations such as IntelGoogle and FedEx, offer seed funding to promising startups working on innovative technologies which might be good acquisition candidates later.

According to Wikipedia, Seed funding or seed capital can be distinguished from venture capital in that venture capital investments tend to come from institutional investors, involve significantly more money, are arm's length transactions, and involve much greater complexity in the contracts and corporate structure accompanying the investment.

Average Funding Amount:  Varies Greatly. $10,000 - $10 million U.S.D. ($150k average from Angels; $1.5mm average from new wave of seed venture funds)

Typical Company Valuation: $3–10 million

Common Investors: Angels, early-stage VCs, startup accelerators

What is a Series A Funding Round?

Series A Financing, or a Series A Funding Round, is usually the first series of stock after the common stock and common stock options issued to company founders, employees, friends and family and angel investors.

The average deal size of a series A funding round has grown considerably over the years, now at about $10.5 million. If a company raises a series A round it means their business plan and initial results have probably went through some serious scrutiny and the company has shown a real potential to be able to tap into a big market.

The capital raised during a Series A funding round is usually intended to capitalize the company for 6 months to 2 years as it develops its products, performs initial marketing and branding, hires its initial employees, and otherwise undertakes early stage business operations.

It is worth nothing you may also hear about "Series AA". This comes from a 2008 Y Combinator simplified set of Series AA Preferred Stock financing documents, which helped streamline early stage equity investments from angel investors. So while sounding like a Series A, Series AA refers to a seed round from angel investors or a VC seed fund.

Average Funding Amount in 2018: $10.5 million

Typical Company Valuation: $15 - $30 million

Common Investors: VCs, “super” angels 

Who invests in Series A Funding Round?

According to Pitchbook, some of the biggest Series A investors in software startups include Accel, 500 Startups, Sequoia, Bessemer Venture Partners, Google Ventures, Andreessen Horowitz and Greycroft Partners.

What is Series B Funding?

While a Series A funding round is to really get the team and product developed, a Series B Funding is all about taking the business to the next level, past the development stage.  Typically before these fundings rounds occur, the company has completed significant milestones and now its time to really build upon that success with additional investment. Series B is to pour the gas on for growth with a larger investment round. At this stage, the company has shown the ability to reach and surpass well planned goals, so now its time to double down and get a better sense of where things can really go.

Like all other funding rounds, there are no absolutes when it comes to funding range, but typical Series B fundings are in the $10mm - $30mm range.

Average Funding Amount in 2018: $24.9 million

Typical Company Valuation: $30 - 60 million

Common Investors: VCs, Late-Stage VCs

Who Invests in a Series B Funding Round?

Some of the top Venture capital firms participating in Series B Funding rounds over the last several years have included Google Ventures, New Enterprise AssociatesKleiner Perkins Caufield & Byers, Khosla Ventures and General Catalyst Partners.


Series C Funding Rounds and More

A Series C Funding Round generally occurs to to make the business appealing for acquisition or to support a public offering.

This is the first of what are called "later-stage" investments. This can continue into Series D funding, Series E funding, Series F funding, Series G funding, private equity funding rounds, etc.

While there is a lot of capital ready, a lot of companies don't even make it to Series C. The reason for this is because Series C investors are looking for breakout companies that have already demonstrated significant traction. Thus, the deal size of Series C funding rounds has continued to increase.

Average Funding Amount: $50 million

Typical Company Valuation: $100–120 million

Common Investors: Late-stage VCs, private equity firms, hedge funds, banks

How to Get Series A Funding

One of the most common questions asked by aspiring entrepreneurs is how to get Series A Funding. 

Since raising a Series A is very tough to do, one of the questions many founders have is what can they do for their firm to be in a better position to ultimately receive a series a funding round.

Beyond the basics of having a great idea with great potential, impressive traction to date, solid team, etc., a lot of it comes down to who you know and what organization(s) you have joined to prepare your team for the road ahead.

Who you know starts with basic networking. Ask for introductions, attend conferences, build your circle of people that can help you directly or indirectly.

In terms of organizations, one of these organizations that is almost universally recommended is what is known as a startup accelerator, or seed accelerator.

Among other things, startup accelerators provide some seed funding, many connections, a dedicated mentor and invaluable education through a fixed term. A cohort of other startups are accepted into the program as well.

Top-tier accelerators are so beneficial to getting a Series A round that the top three accelerators alone account for about 10% of all series a funding rounds

However, just getting into a top-tier accelerator is also very difficult, since many of the leading venture firms will only source candidates from these accelerators.

To help in this regard, recommended reading includes this this article from HubSpot's Founder and this one from Gan on the top five ways to get into an accelerator.

Keep in mind, nothing will take the place of a compelling business opportunity, the proven ability to execute and the right team. That all said, you need to also position yourself to be noticed and then believed in by the right people.

Who you know and what experiences you've had along the way will be key in establishing this positioning, so series a investors will ultimately be able to have full confidence in selecting your team.

Related Fundz' Content:

Regulation Considerations When Raising Startup Funding

What is a Series A Funding Term Sheet?

Series A Funding Trends - 2019 Weekly Updated Tracker

Every Startup That Closes and Receives Seed Funding

Startup Database Live Funding Map

Venture Capital Live Funding Map By Industry

Other Articles:

How Much Revenue Should You Have Before looking for Investors?

What is Series A Funding for a Startup - Quora Discussions

How Funding Rounds works for Startups - Forbes 

Glossary of Funding Types

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