What is the difference between seed and Series A rounds? How do these funding rounds differ for startup entrepreneurs?
You don’t just ‘get funded’ as a startup. Funding comes in waves or ‘series’. There can be a world of difference between fundraising rounds. As a founder, it is your role to understand these differences and prepare for them in advance. Everything relies on it.
So, how many rounds of funding may you have to raise for your startup venture? What’s new at each stage that you need to be ready for?
How Funding Rounds Differ
These are just some of the factors that will vary at each stage of business and fundraising.
Investors will have different expectations and priorities at every round. This ranges from everything riding on the team and problem in pre-seed rounds to cash flow and profitability in late-stage funding rounds. As you progress investors will have higher and higher expectations of your data, financials, and team.
Pitch Deck Sizes & Content
The earliest rounds just need a few slides and a one-page business plan. Later rounds will mean more data and content to include in your deck, and more meat expected by investors during pitches, meetings, and due diligence.
You’ll have a lot more going into your data room as you grow and mature. Your pitch deck slide count may scale from a handful to 20 slides.
Once you get to late rounds you should also be taking into consideration that an exit may be equally as likely as raising more funding when you go to the market. You may end up (being acquired) or in a merger instead of putting more capital in the bank.
Types Of Investors
There is a very diverse pool of investors who invest in startups. While lines are blurring and firms and funds are stretching in either direction, these investors are very segmented by the stage of your startup and round.
This runs the gamut from friends and family, to startup accelerators and incubators, angel investors, angel groups, venture capital firms, strategic corporate units, and private equity funds.
There are various ways to fund your startup venture. This can range from loans to grants, donation crowdfunding, and equity capital.
Sometimes you may find a combination of these terms. Or you may start with convertible notes that can turn from debt into equity at a later date.
Some may have to be repaid. Other money may come at the cost of ownership and control of your business and giving away board member seats.
Where The Money Is
While startup ecosystems around the world are evolving and maturing and popping up in new places, and venture capital is also gradually expanding globally, each startup and round can require looking in different places.
Some regions, countries, and hubs are much friendlier for raising for certain types of startups. In other scenarios, it is the size of capital needed that is the issue.
Many countries just don’t have the volume of capital needed as you progress through the stages. Or they aren’t aggressive enough. Then there can be specific regional advantages of having local investors.
This is why, you must understand what is the difference between seed and Series A rounds when trying to get funding.
Keep in mind that in fundraising storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
A Quick Guide To Startup Fundraising Rounds
Startups are raising more and more rounds, and are often staying private much longer and until they are much larger than they used to.
This isn’t always the case, but if you have that much conviction and commitment to go in on this startup, then you also need to be prepared to go through multiple rounds of funding before an M&A deal or going public.
These are some of the rounds you may progress through if you make it long enough or stay private long enough.
These are small starter rounds that help initially get new companies off the ground. You’ll give up the largest chunks of your company when raising during early stages like this.
Some entrepreneurs choose to skip right over this and bootstrap their way through to the Seed or Series A stage.
Seed rounds are getting larger. Though this is when the first meaningful outside money often comes in. it’s seeding the company to really get going.
If you’ve made it this far you’ve built something of substance. It’s not perfect. There are still some things to work out. Though you’ve got some great proof points.
By this stage, you have the fundamentals of a real business. You may not be huge or profitable yet, but you are on the way. Capital at this stage can make the pivotal difference between failure, or staying a small business and really becoming a fast-growth startup.
Series C is about getting the funds to scale. It’s time to go bigger and faster. These are often very big rounds.
Series D, E & Beyond
These late rounds have become much more common. They are big rounds. Rounds often used to acquire other companies, expand globally, and fill in gaps before and exit.
It is not uncommon for startups to host a bridge round in between earlier rounds. This can be to fill financial gaps when more runway is needed to hit major milestones and qualify for better terms and a new level of investors.
Or perhaps when there is a crisis or the market is just attractive, and it makes sense to bulk up on capital in advance.
Seed Vs. Series A Rounds
These are two of the most important rounds, and the most common that startups and their founders will have to fund their way through.
So, What is the difference between seed and Series A rounds? How do you ace them?
As the name suggests this round is all about seeding the company. Giving it the financial start and nourishment it really needs to have a chance and to have a chance to do things well.
Preparing For A Seed Round
Unless you are a serial founder who already has a few big rounds and startup exits under your belt then there is a lot of work to do here.
You have a lot of work cut out for you to build your credibility and network and to build relationships. You might be doing a lot more marketing and PR.
Seed Pitch Decks
Seed round pitch decks are short and lightweight. Experienced investors know that many of your plans and designs are going to change a lot in the months ahead.
This deck is about getting their attention, speeding them through the pitch, and getting them to take the next step. 10 slides are enough. Any technical details you do want to share belong in your data room, not your intro deck.
You should have enough research and data to warrant you pursuing this and taking up their time. Yet, they also know you are still pretty much riding on an idea and passion for solving a specific problem.
Expect investors to be most focused on how big the market is, how well you’ve validated the problem and demand for a solution, and how much confidence they can have in your founding team seeing this through to delivering great returns for them.
Investor types can vary widely at this stage of the fundraising game. They may be individual angel investors or even big well-known VCs. Startup accelerators can also play a significant role at this stage.
So, take the time to understand what is the difference between seed and Series A rounds before approaching the right investors.
Use Of Funds
By this round, you may or may not have completed developing your MVP. You may or may not have sales and revenues. This round should provide the capital to complete a product, start testing a business model and begin compiling more data.
Funds raised at this stage are often also used for hiring more developers and key team members. Getting funded and bringing in notable investors can help bring extra credibility to the recruiting process. Marketing is also a top use of funds at this stage. Especially for executing on the go-to-market plan.
Looking for more information on how to raise a seed round? Check out this video I have put together explaining in detail how to go about the process.
A Series A funding round is really about stepping up the game. It is about building on the foundation and starting to become a serious player in this space.
Funding at this stage can provide notoriety and prestige. That can help get noticed, ink important business deals, draw more talent, and cement a position as a market.
For investors, this can often be about pre-empting their competition from backing what may be the winner in this space. As well as making sure they don’t miss out.
Preparing For A Series A Round
Hopefully, your well-chosen Seed-stage investors will have been busy making introductions and connections to Series A level investors for you.
Though these investors can increasingly be in a whole new class. That means you still have a lot of work to do to get noticed, build relationships and build trust and credibility before you get to actively raising.
Series A Pitch Decks
You should have more tangible data, facts, and details to report by this point. Yet, it is still important to keep your pitch deck streamlined.
Unless you have substantial revenues, then you still may need as few as 10 slides in your deck. Again, put the meat you really feel compelled to share in your virtual data room, not the deck itself.
Figure out what is the difference between seed and Series A rounds when working out your strategies.
To be considered for a Series A round of funding, then you should already have a product and some traction. Your MVP should be working, with more development going into enhancing that.
You should be able to demonstrate product-market fit, and know your unit economics. Investors are looking for that hockey stick-shaped growth, even if it is more in terms of customer acquisition than revenues and profits.
You should have the foundations of a viable business. It’s functional, if even still glitchy, in need of polishing and more capital to get to the next stage.
Series A rounds have been getting much bigger. This also means you will be dealing with a new level of investors who have the capital to comfortably participate at this scale of financing, and have the expertise to lend to manage it and the next phase of progress well.
This is generally the domain of VC firms. Though you may also find corporate investment partners. Recognize what is the difference between seed and Series A rounds before you approach them.
Use Of Funds
Series A funding often centers around adding fuel and runway to a company that is proving it can be notable and deliver great returns for investors. This money may help work out some kinks and button-up unit economics, though is ideally being used to grow the company. This may be through hiring, entering new markets, and scaling marketing.
Keep focused on the fact that your Series A funding is meant for getting you through to your Series B. That means achieving clearly set business milestones. The investors you choose in this round should also be strategically chosen to help you set up an easier B round.
Startup funding comes through a series of rounds. The Seed and Series A rounds are two of the most notable and pivotal for startups. Every round is different.
These two present one of the biggest leaps in investor expectations and sizes of investors. Understanding and preparing for this can make all the difference in how easy funding comes for your startup and the future of your venture.
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