This article is part-one of Burkland’s three-part series on what startups need to know to raise Series A funding successfully. For related information, also see part-two, How Much Money Should My Startup Raise at Series A? and part-three, Critical Series A Finance Metrics for SaaS Startups.
Today’s article will talk about the best time for a startup to raise Series A funding. We’ll examine the issue in terms of important growth milestones that investors will want to see and key reasons that can make it worthwhile for your startup to exchange valuable equity for money in the bank.
When Should My Startup Raise Series A Funding?
Start thinking about raising Series A funding when you’re beyond creating a minimum viable product (MVP) and focused on your go-to-market strategy.
At the MVP stage, startups typically raise their Seed or Pre-seed rounds. These rounds are usually for substantially lower dollar amounts than Series A. A Pre-Seed round is typically founder funded, friends and family,and/or angel investors. Series Seed is when Venture Capital (VC) firms come into the picture.
Series A is almost always VC led. At the Series A stage, VCs will typically want to see that you have a growing customer base (beyond your earliest adopters), solid revenue growth, and related metrics. There is no hard-and-fast rule for how much annual recurring revenue (ARR) a startup needs in order to raise Series A funding, but a good general rule of thumb is at least $1 million ARR. I cover this topic in more detail in part-three, Critical Series A Finance Metrics for SaaS Startups.
One way or another, by the time you go to raise your Series A round, you should have demonstrated a strong product-market fit.
Why Should My Startup Raise Series A Funding?
Just as important as when to raise Series A is why to raise Series A. Most startups exchanged 12-26% of equity for their Series A funds in 2021, with the average dilution being 20%, according to Carta’s Q4 2021 Private Market Report. It goes without saying that to share 20% of your company, you’d better have a very compelling use for the funds you receive in exchange.
Top Reasons to Consider Raising Series A
- Accelerate growth. You’ve proven your concept, gained traction with early adopters, and are ready to enter the market “full speed ahead”.
- Seize an opportunity. Your market is heating up, and you want to accelerate team growth, product development, and marketing to establish a strong early mover advantage.
- Shore up cash. Your startup is down to 6-12 months of cash runway. Burkland’s general advice is to secure 18-24 months of runway when raising Series A.
- Add strategic support. You’re ready for more outside support. Remember, your VCs aren’t just a source of capital; they’re also partners. VCs offer valuable strategic support to a Series A startup. Somewhere between Seed and Series A is also usually the stage in a startup’s growth where a fractional CFO becomes invaluable especially to prepare for the Series A raise…
Raising Series A funding can give you the leverage to grow your team, speed up product development, and expand your sales and marketing. A great CFO on your side can help you determine exactly when to raise Series A and how much to raise, help you prepare for due diligence, support you through the fundraising steps, and manage your funds efficiently after a successful round. Contact Burkland to learn more about how we help growing startups through Series A funding and beyond.
Don’t miss these related articles from Burkland’s blog: