Series A explained

It is finally happening.

All of your hard work, late nights, blank stares, and having no social life for the past few years is starting to pay off. No longer are your peers telling you to get a real job. Instead, they are asking if you are hiring.

Now you have a real startup, one that has a brand, customers, employees, and most importantly, revenue. The product has been proven and now you need investors to help you scale up. But you aren’t going to circle back with your weird cousin for an influx of capital, this is much bigger than any previous investors you may have approached.

This is the Series A round and this is strictly for venture capital firms and super angels (apologies to your fifth grade XBOX partner in crime, but he missed out).

This article aims to help you understand everything you need to know about the series A stage. For the full list of startup stages, click here.

What exactly is the Series A funding stage?

Series A is often referred to as the first significant round of venture capital investing for a startup. Or if you want to get technical, Crunchbase defines it as “funding rounds for earlier stage companies and range on average between $1M–$30M.” The name comes from the class of preferred stock sold to investors in exchange for investment.

This round is specifically for venture capitalists and angel investors with large pocketbooks (the super angels).

Why is this the case?

First, because the startup needs a large amount of capital to truly grow and scale at this round. At earlier stages, one of the most common phrases that founders hear from venture capitalists is that the company is too early for them. There isn’t enough metrics, traction, customers, or revenue to justify an investment. This phrase tends to evaporate as startups reach the Series A round.

In fact, the meeting acceptance rate for this round is much higher than the pre-seed and seed rounds. No longer will you have to deal with this.

At this stage, you have a lot more traction than the earlier funding rounds of the startup. Below are a few examples of traction requirement  for a Series A in SaaS according to Chris Janz’ 2023 napkin.

Series A funding requires a Series A valuation. The startup has to be properly valued and priced. To reach this valuation, the startup will be scrutinized more than ever before. Analysts will examine the company metrics, size, track record, management, risk and most importantly, the potential for growth.

Typical valuations at this stage vary between $10 million to $30 million and the median check size is around the $10 million mark. Investors at this stage expect a significant return on their investment.

According to Carta, the median Series A funding round grew steadily over the years and ended 2023 at $11.3 million. This was an increase from 2020.

Are you ready to raise Series A?

Unlike the earlier rounds where investment is often the result of the quality of the founding team and the story that they can tell, the Series A round requires accomplishments that can be measured.

YCombinator has created this graph that shows where the Series A round should exist between seed and Series B. Keep in mind that this point on their graph is different for every startup.

While there is no way to accurately tell if you are ready for a Series A round, here are some key points that you should be able to demonstrate to investors.

Here is a handy chart from Founder’s Institute to keep it in check.

As with other rounds, you need to have your legal paperwork in order. This includes:

Y Combinator provides a much more detailed diligence checklist for founders for the Series A round.

Who invests in Series A rounds?

When you reach Series A, you're dealing with professional investors only. This includes major firms such as First Round Capital, Sequoia Capital, Andreessen Horowitz, Lightspeed Venture Partners, etc.

Some of the largest Series A rounds in history include:

Here is a list from Crunchbase for funds that led Series A and B rounds in Q1 2022.

If you were fortunate enough to have a VC firm invest in your seed round, they probably will invest in your Series A round. This is due to the fact that VC firms double down on the winners that they believe in. It wouldn’t make sense not to invest in you again. It also doesn’t look good to other Series A investors if the seed investors don’t take part in the Series A round.

The round is a priced round, the terms become more technical and sophisticated. The metrics become a key part of the analysis - get familiar with acronyms like ACV, LTV, CAC, etc.

It also is important to note how Series A financing works. In the majority of cases, Series A financing comes with anti-dilution provisions. Startups usually issue preferred shares that do not provide their owners with voting rights. Startups can also issue convertible preferred shares. These preferred shares offer the investors the option to convert their preferred shares into common stock. This occurs at a future date, which is predetermined.

Founders should know that the returns for Series A investors are lower than the returns from seed funding.

How long does the Series A round last?

Some founders still raise Series A themselves while others outsource that task to professional fundraising advisors.

Ideally, you would close in 4 months, but it still takes 6 months on average to raise your round - and much longer if the market is bad or your case is complex.

Uses of Series A capital

Funds are used for growth, marketing, additional hiring, scaling up the business, purchasing equipment and inventory, as well as other long-term business goals.

For example, this is how 8base, a DevTool company, planned to spend their $10M Series A funding.

And here's the same data for Jus Mundi, a Legaltech startup.

(You can find these slides and more at OpenDeck.app)

Series A VC funds

Here at OpenVC, we currently have 3,740+ funds who invest at Series A. With check sizes ranging from $500,000 to $40,000,000, connecting with the right investor for your startup just got easier. Full list available here.

As always, make sure that your company fits their investment thesis before submitting your deck.

Conclusion

Reaching a Series A round is a major accomplishment for founders, but the battle is just beginning.

Now is the time to play for all the chips and truly scale up to be an industry leader. By understanding what is required for Series A funding, you have a better chance of not only successfully raising a Series A, but making it to the next funding round and hopefully having an exit.