What Is a Series A Round?
Posted by Pierre de la Fortune on January 21, 2015 @ 12 a.m.
Written by Linda Doell
Series A funding usually is the second stage of startup financing and comes after the fledgling company has hit up friends and family for money – or raised a small amount of "seed" financing from angel investors. Series A is the stage where venture capital firms typically get involved. What that means to you as an investor is an opportunity to get in on the ground floor of a company that could turn out to be the next big thing. Keep in mind though, the startup will still be at a stage in its existence where it hasn't made money yet. Podium Ventures Co-founder and CEO Cameron Chell says it's crucial to look at the company and see if they can prove their business model works. He also suggests looking at how the startup spent the seed round money and how accurate its bookkeeping was of those expenditures and of projections. Examine the company and determine if the management team has had to adjust its way of running the business and what the team learned from the seed funding round. A healthy startup should be showing signs of moving forward with its business plan in some way – an expanding team, beta customers, good media coverage, says venture capitalist Mark Suster of GRP Partners.
"If you have beta customers, new pricing plans, different positioning, more market insights, good press coverage – whatever – these are all signs that the ball is moving foward," Suster writes in his blog. "It is that momentum that is easier to judge than a single data point."
And in the world of startups, momentum is a vital component of a smart investment decision.
Series A funding itself has changed over the years from being primarily angel investors – individuals or investor groups who typically invest small amounts of capital into a new startup – to include venture capital firms.
"VCs are moving into early stage financing to get access to the freshest deals and brightest, new entrepreneurs," says entreprenuer and investor Ben Yoskovitz of GoInstant.
But before you head to the dance floor, take a look at how the company uses its money and ask for a breakdown of the amounts spent for marketing, working capital, expansion and other items. A solid management team will have those answers for you and the numbers will give you a clear picture of the company's stability.
Ask the company to justify its revenue projections, especially if they don't seem plausible, says Paul Morin of CompanyFounder.com. Realistic projections are among his list of 11 items venture capitalists should be looking for in a startup company. Other things to keep in mind include strong margins, exit potential and proprietary technology.
It's all part of the funding dance. So, what would make you want to put on your investment dancing shoes and join in on the party? Tags: Investing in Startups Linda Doell is an award-winning, multiplatform editor and reporter in the news media industry with a proven track record of creating and approving professional content in fast-paced, high-volume environments. For more info please visit: http://www.dailyfinance.com/writers/linda-doell/
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