What Is Series A Funding? Definition & Process

Securing the funding you need to turn your startup idea into reality is one of the most important steps you’ll take in your entire entrepreneurial journey. For many people, it’s also one of the most intimidating steps. Whether you’re taking your very first strides along the path of startup financing or you’re already an experienced fundraiser, you might feel like you need some guidance when it comes to securing investments. 

The Series A round is a crucial milestone along your business’s trajectory that bridges the gap between seed funding and further growth. In this article, we’re going to demystify Series A funding and offer some tips for navigating your series A funding round successfully.

What Is Seed Funding?

Before you can begin to understand Series A funding, you need to be familiar with seed funding as well. Seed funding is usually the first round of funding a startup receives (although it’s becoming more and more common to seek an even earlier, pre-seed funding round). 

At the seed stage, your business is in its earliest days. You are probably still developing and validating your business idea, conducting market research, and possibly working on a mock-up or a prototype. You may be able to get started with only minimal out-of-pocket spending (called bootstrapping), but you’ll ultimately need external funding to complete these crucial initial steps. 

The most common sources to turn to for seed funding are friends and family, angel investors, or specialized incubator or accelerator programs.

• Friends and family can be a great place to begin your search for funding. Who better to ask to bet on you than the people who know you best and have your best interests at heart?
• Angel investors are wealthy individual investors who use their money to back new startups — often the ones in which they personally see potential.
• Startup incubators and accelerators are dedicated programs that give select young companies a boost by providing funding and other resources like mentorship and networking opportunities.

Seed stage investors will generally ask for equity in return for their seed investment — usually in the ballpark of 10% - 20%.

What Is Series A Funding?

Now that we’ve covered the basics of seed funding, let’s move on to Series A funding. Series A funding is the second significant step in your company’s funding journey (or possibly third, if you received pre-seed funding). Once you enter the series A stage, you need to have more than just a solid team and some blueprints.

However, that doesn’t mean your business needs to be profitable yet. By the Series A round, you should have a working product, enough customers to provide at least a small amount of revenue, and possibly a few employees — in other words, your business model should be operational, but it’s okay if it’s not yet wildly successful. 

The Series A round is all about demonstrating with tangible traction that your business is actually feasible in practical terms in order to convince investors to commit capital toward its further growth. Series A investments are typically quite a bit larger than seed-stage investments. This is because growth at the Series A stage is usually more expensive, and also because A-stage companies generally represent less risk for investors than seed-stage companies. 

Just like seed investors, series A investors (usually venture capital firms) expect equity in return for their capital. It’s common for the founding team to give up slightly more equity in the A round than in the seed round — typically between 15% and 30% — though the right number varies based on many individual factors.

3 Businesses that Benefited from Series A Funding

It’s extremely common for companies to receive capital from professional investors to help them reach their growth goals. Most (if not all) of the brands you know best and interact with most often built their success on multiple rounds of fundraising — including a Series A round.

Let’s take a look at how three of the world’s most successful companies, Google, Amazon, and Uber, were influenced by their Series A funding rounds.

1. Google

Google's Series A funding was led by Sequoia Capital and Kleiner Perkins, both venture capital firms. In 1999, these firms invested $25 million into Google’s Series A round. This was Google’s most significant investment round, and the $25 million raised is what allowed the company to expand as rapidly and successfully as it did throughout the early 2000s. The rest is history.

2. Amazon

Amazon’s series A round was led by Kleiner Perkins, which injected $8 million into the company in 1996 when it was still an online bookstore. Kleiner Perkins’s investment was the only VC investment into Amazon — the seed round was sourced from Jeff Bezos’ parents. Amazon invested all that money into growth, and within just 3 years, Kleiner Perkins’s investment had already generated returns of approximately 55,000%.

3. Uber

In 2011, Uber raised a Series A round worth $11 million, led by VC firm Benchmark. Though many of the investors Uber approached were initially very skeptical about the startup’s concept (particularly regarding regulatory challenges), Uber took the $11 million investment and used it to scale their meager user base. When Uber went public eight years later, it was one of the largest tech IPOs in history at $8.2 billion.

What to Expect from Investors at the Series A funding stage

It’s very important to understand what investors are looking for at the Series A funding stage. While there are some universal fundraising truths, for the most part, your strategy should depend on the specific stage of the process you’re currently at.

At the seed stage, investor pitches are more about clearly articulating your business idea, demonstrating its market potential, and building confidence in your team. At the Series A stage, however, investors will be looking for real evidence of success — not just potential.

Most importantly, companies that are seeking series A funding need to be able to demonstrate traction. Series A investors want to bet on companies with bright futures, and the best way to show them a bright future is to point to your wins so far. If you don’t yet have signs of traction (like a steadily growing user base or increasing revenue), it may be too early to ask for a Series A investment.

Most Series A investors will be very interested in seeing key performance indicators like market share, revenue projections, and growth metrics. They’ll also expect to see a well-defined growth strategy and hear a clear plan for how you plan to use their investment to scale your business and provide attractive returns.

Investors will also become more interested in your competition at the Series A funding stage. They’ll want to know how your company stacks up against the other major players in your market and what you’ll do to stand out. While assessing the competitive landscape is also a very important part of the seed funding stage, investors will now be paying attention to your actual market share and what you’re doing to improve it — not just projections.

Ultimately, a Series A investment is meant to serve as a gateway between initial success and exponential growth. It’s very important to show Series A investors evidence of that initial success and make it clear how you will use their money to turn early traction into massive long-term gains.

Enhance Your Fundraising Journey with Advice from an Expert

Startup funding is never easy, but it’s crucial for success as an entrepreneur. Whether you’re working on securing Series A funding, seed funding, or any other stage of startup financing, getting advice from an expert can be a great way to improve your odds and bolster your confidence. You can find real fundraising experts who are willing to share their tailored insights to help you reach your fundraising goals faster.