A Complete Guide to Series A Funding: How Much You Need + How to Get It
Series A is where the rubber meets the road for venture-backed startups. This is your first major round of funding, taking you beyond the early stages of seed capital. It’s what will set you down the path to hypergrowth if used wisely. Here’s what you need to know to secure your Series A.
Every funding round is a meaningful achievement and milestone for startup founders — but the day you raise your Series A might feel a bit different than the rest.
The jump from Seed Stage to Series A is an important point of validation for any startup. It’s when you graduate from the earliest inklings of an idea and minimum viable product (MVP) to the stage where it’s time to kickstart a process of high growth and the path to an eventual IPO or another lucrative exit.
But because of that jump in expectations, the process of raising your Series A can feel daunting. Here’s what you need to know before raising a Series A to make the process as smooth as possible.
The Investor Due Diligence Checklist
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What Is Series A Funding?
Series A funding is the first major round following your seed stage and indicates your business has shown early signs of scale.
Compared to a seed round where angel investors and early-stage VCs are backing big ideas, the Series A comes with expectations of proven, consistent revenue growth. Your seed capital should have helped you build out an MVP, and you need new investors to help you get to the next level.
How Series A Funding Works
Series A funding works a bit differently from pre-seed and seed funding, revolving more around traditional venture capital institutions with one generally taking the lead on the investment.
From a high-level logistical standpoint, the process should feel familiar to earlier funding rounds. You connect with investors, set a meeting to share your pitch deck, go through the due diligence process with interested VCs, and negotiate term sheets before closing the round.
Unlike earlier rounds, the Series A investment process is when everything becomes more metrics-focused. The vision and the total addressable market (TAM) are still critical — but investor emphasis will be on the key metrics that highlight your growth potential.
That’s what Joel Blachman, Operations and Finance Lead at Amper Technologies, found when working with his CEO to raise the company’s Series A.
At an early-stage company, obviously the financials are important, but at the end of the day, VCs are really making a bet on the growth potential, the market opportunity, the founding team, and really the product. So, they cared most about…ARR, retention…burn multiple, LTV:CAC, magic number, etc.
As you build out a data room for the Series A fundraise, make sure to have granular insight into the following metrics that Joel mentions.
- ARR. The expectation is that your business is generating revenue at Series A, often in the range of $2 million to $5 million of ARR. But growth trajectory matters more than the precise number.
- Compound monthly/annual growth rate. The general rule of thumb is that you should be doubling your business annually at this stage, although some might go as far as to say it should triple. Expectations depend on industry, investors, and market conditions.
- Net revenue retention. Do you have strong retention of your earliest customers? Are they paying you more at each renewal?
- Burn multiple. Investors want to know that you can balance revenue growth with efficiency even in the early stages. Burn multiple is an easy way to present that balance for the business.
- SaaS magic number. An especially useful efficiency metric for early-stage companies. If your number isn’t at least 0.75, investors may wonder if you’re ready to inject cash into your go-to-market motion.
But according to Joel, the process is less about which metrics to track — the standard SaaS finance metrics will suffice. Rather, it’s more about how you present them. Joel says that “most of the VCs were asking for similar metrics, but they all wanted it presented a little bit differently.”
If you’re gearing up for a Series A fundraise, start tracking your numbers at the most granular level possible now. That way, when someone wants to slice the data a certain way, you’ll be prepared.
Major Series A Investors
Major Series A investors have traditionally included early-stage firms like First Round Capital, Greylock Partners, and Y Combinator alongside multi-stage giants like Andreessen Horowitz and Sequoia Capital.
But stage-by-stage activity and the VCs driving the most deals can change quarter to quarter. In Q1 2023, the most active Series A investors were:
- Andreessen Horowitz (7 investments, $258.5 million)
- General Catalyst (5 investments, $87.5 million)
- Addor Capital (5 investments, $14.4 million)
- Sequoia Capital (4 investments, $67.8 million)
When Series A Funding Makes Sense for Startups
The truth is that there’s no single, satisfying answer for when Series A funding makes sense for startups. Variables that will impact your ability to raise include the amount of money you raised in the seed stage, how long you’ve been in business, what industry you’re in, how well you can tell the story of your company’s vision, and how much revenue you have.
Even though there’s no perfect rule of thumb for when to raise a Series A, there are some general guidelines that often hold true. Ask yourself:
- Have you gotten traction in the market to the point of $2+ million revenue?
- Are you growing at a 2x or even 3x rate annually? Is it consistent month to month?
- Are VCs proactively interested in investing?
- Do you have a clear plan for how the money would drive more rapid growth?
That last question is particularly important. Having a financial plan in place that shows you know where to invest the funds is critical. According to Kalor Lewis, VP of Finance at Fivetran who joined when the company raised its Series A, “when a startup is small, the CEO might be able to look at bank balances and project costs for immediate plans. But that breaks once you hit a certain scale,” which is why you need to be able to answer the following questions leading up to your Series A:
- What are the hiring plans behind our overarching business goals?
- What should our sales plan look like if we want to hit growth projections?
- How will we execute and measure our go-to-market motion?
- How much money do we want to raise, and how will we spend that money?
If you can answer those questions and hit some of the mile markers above, you’re ready to raise a Series A.
The State of Series A Financing for Tech Startups in 2023
Through Q1 2023, it’s clear that raising a Series A round of funding is harder than it’s been in years. While there was a boom in VC activity immediately following the pandemic, deal volume has significantly decreased as a result of a severe market downturn that started in mid-2022.
Crunchbase data shows that there were just 329 Series A deals in Q1, the lowest number from the last 3 years.
These market conditions mean a few things for startups looking to raise a Series A. First and foremost, investors are being much more selective about which companies to invest in, which means you need more attractive revenue and growth numbers than in the past.
But it also means that you should expect to raise less money and at a lower valuation than you may have gotten in 2021 or early 2022. SaaS valuations have been shrinking throughout the current market downturn, which means it may take longer to find investors who will do a deal on terms you feel are favorable.
A small silver lining is that, according to Crunchbase, the companies that successfully raise a Series A got more money in Q1 2023 than the same period last year (median of $12 million vs. $7.5 million, respectively). That doesn’t mean the terms are more favorable. However, it does mean that you’re likely raising for a cash runway of 24 months instead of 12-18 months.
Prepare for Your Series A Funding Round with Mosaic
The main value of Mosaic when raising a Series A funding round is the ability to answer questions about the business in real time.
No matter how much time you spend thinking about and building out the data room for the fundraise, there will always be investor questions and requests that require new analysis. When every ounce of data aggregation and analysis is a manual, spreadsheet-based process, it’s almost impossible to keep up.
Instead of answering a question in the moment, Joel says you end up having to tell your CEO, “let’s actually follow up with that investor after your call with the real data,” because you can only give a half answer immediately.
Mosaic automates the data collection and cleansing processes so you’re always looking at real-time actuals from your core source systems. When someone asks for a unique view of a particular metric, you can slice the data however necessary and answer the question right in the moment.
Take your compound growth rate as an example. Joel said:
Some investors wanted to look at it monthly. Some people wanted to look at it quarterly, based on calendar quarters, other investors wanted to look at the last three months… Being able to adjust the timeframe we were looking at to really answer those questions was definitely one aspect I was not expecting to be so different across every request.
With Mosaic, you can toggle those views in real time rather than diving deep into spreadsheets for each request. And that’s one reason why Joel and Amper invested in Mosaic following their Series A — to make sure they didn’t run up against these issues moving forward.
Want to learn how Mosaic can help you cut your fundraising prep time down to minutes instead of hours, days, or even weeks? Request a personalized demo.
Series A Funding FAQs
What is the difference between Series A funding and Series B funding?
The difference between Series A funding and Series B funding is the maturity of your business. At Series A, you’ve just started to prove that your business model can generate revenue and that you have early product-market fit with a growing customer base. At Series B, you’re proving that the product-market fit has turned into a flywheel, the business plan can scale, and you need additional funding to pour fuel on the burning fire.