How much money should my startup raise at Series A?

Building a startup and getting it off the ground and running is not for the faint of heart. It takes grit, determination, strategy, and more importantly, funding to take your startup from ground zero and scale it up into an established, late-stage startup. To fund your startup, you’ll need to find capital somewhere — in fact, this could be one of the biggest barriers for entrepreneurs who want to take their business to the next level. Some may have the capital already or are able to borrow from friends and family, but in most cases, startup owners will look to venture capital firms for the funding they need.

Before we get into the nitty gritty details of how much you’ll need to raise for your Series A funding round, we’ll first outline the factors involved in raising funding for your startup, startup valuation and its importance, timing of Series A funding, and what investors look for in startups looking for funding.

Raising funding for your startup:

First thing’s first: To scale your startup, you’ll have to fund it. Securing funding is not a one-time event, but a multi-stage process. Startups looking to scale will likely undergo various rounds of funding, starting at what is called the seed round. The seed round is one of the earliest stages of funding a company that also represents the first official equity funding stage. It’s worthy to note that most companies won’t move past the first few stages of seed and Series A funding. How far you go depends on the needs of your startup.

As we mentioned previously, seed funding can come from friends and family members, but typically comes from venture capital companies or other investors. These rounds can vary significantly as each company will need a different amount of money to get started with its processes, and can range from anywhere between $10,000 and $2 million. It’s only after proving itself through a good track record that companies can look towards securing the next stage of funding.

How is Series A different from seed funding?

You may be wondering how exactly Series A funding differs from seed funding. Well, some of the most significant differences lie in the levels of product and customer acquisition. Seed funding usually gives entrepreneurs a chance to prove that they can build a product or service that is in high demand and has a good product-market-fit while Series A funding happens with that already having been done. In the end, if your startup is able to raise more money at a higher valuation than your seed round, you are clear to move into Series A.

Series A funding also requires Series A valuation, the price at which the company is valued at. When it comes to how much you can actually raise at the Series A level, this is directly related to the startup’s current valuation. A startup’s valuation can be impacted by a number of factors, including the company’s track record, risk involved, company’s management and board of directors, and more.

When should startups look to raise a Series A round?

We know that seed funding must be acquired and successfully deployed before a company can move on to raising Series A capital. This typically happens between six to eight months before the funds from the seed round have been fully deployed throughout the company in order to give your startup enough time to prepare. Preparation for raising Series A funding includes compiling a pitch deck for investors, conducting research of the market landscape, tracking the current traction for current and future customer acquisitions, and assembling a strong management team.

These are all factors investors will look into and investigate when deciding whether or not they want to participate in helping you raise the funds you need in Series A.

How exactly does Series A funding work for investors?

Think about the very beginning stages of a startup, right when it’s founded. Usually, startups will offer stock options to people like the founding members, executives, angel investors, and people who are close to the business. A step away from this is preferred stock, which can be sold to investors during a series A. Preferred stock presents a mutually beneficial relationship for the startup and future stockholders in that it allows investors to take claim early on in a business they believe in.

During a Series A round, investors are typically able to purchase between 10% to 30% of the business, as this is when the business is trying to grow and prepare to enter into the market. The actual amount can be decided by the company depending on how much of the company they want to sell. As you can imagine, founders will likely want to hold on to as much of the company as they can while still ensuring investors get their fair share and ROI out of the startup’s success.

Investors will be curious to see key metrics that prove how fast your startup is growing, so it’s important to keep track of KPIs, whether it be over a monthly basis or an extended period of time. Potential investors in particular will want to look closely into the metrics you have before deciding whether or not to invest in your startup.

So…how much money should your startup raise in Series A?

If you were waiting for us to reveal a magic number that makes for the “perfect” amount of money to raise, you may be disappointed. How much money a startup should raise in a Series A round depends heavily on the goals of the business, the track record of not only the company but those who are running it, and who you have on your side. The amount of funding will vary greatly from company to company, industry realm, and even the economic climate.

You may have noticed recent news headlines highlighting the reduction of funding from venture capital and investment firms due to the economic downturn. Tech startups and big tech have suffered from the effects of the market slowdown. This serves as an important lesson for companies looking to raise funding: the economy can have a big impact on whether investors are feeling like they’re pinching pennies or willing to take more risks.

A good rule of thumb to go by is to determine how much money your startup will need to both fund and meet your revenue growth milestones to get to the next stage of funding later down the line (Series B). According to recent surveys, the average Series A funding amount in 2019 was $13 million while the average Series A startup valuation in 2019 was $22 million.

While there’s no “right” answer as to how exactly to secure, distribute, and capitalize on series A funding, you can start by consulting your management team and seed funding investors. Putting brains together to strategize on how your startup will utilize the funds it has to maximize the revenue you’re able to generate and the startup’s overall valuation is probably the best thing you can do for your startup. Getting your startup to a healthy financial and strategic place even before you approach Series A funding is a sure way to make sure you’re on track for future funding rounds.