Series A Financing

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What is a 'Series A Financing'

Series A financing is the first round of financing given to a new business once seed capital has already been provided. Typically, this is when external investors are given company ownership for the first time. Also known as round A or round A financing, this funding is commonly offered in the form of preferred stock and may have anti-dilution provisions in case more financing is given, in the form of common stock or preferred stock, in the future.

BREAKING DOWN 'Series A Financing'

Under most circumstances, Series A financing is given when the new venture generates revenue from its business model, though it will almost never be generating net profits. Series A investors are venture capital funds or angel investors that are willing to invest and take on the high-level risk common when investing in startup or early-stage companies.

When the venture expands and additional capital is required, successive rounds of preferred stock are issued to investors through Series B, C and so on. These subsequent rounds offer investors an indication of their placement in the hierarchy of rights to profits the venture generates in the future. The business is revalued prior to each round of funding; thus conversion terms could potentially be different for different rounds. This is dependent on the valuation of the company at every stage.

Specifics of Series A

Valuation of this series, or round, is reflective of the progress made utilizing seed capital, the efficiency of the management team and a number of other qualitative assessments conducted during the seed round of funding. In this round of finance, investors generally buy a 50% ownership stake in the startup or newly operational firm.

Goals for this series of financing are often centered around a continuation of progress and development. To this end, funds received during this stage of the company’s growth are used to hire experienced talent, reach milestones that create value, further validate the product or service being sold, instigate efforts to develop the business model and draw in investors, and build interest in offering financing in the next series where valuation is increased.

Investing

Investments during this round generally come from traditional venture capital firms. The most established firms investing in this round include big names in the venture capital circuit, such as Benchmark, Greylock, Sequoia and Accel.

The process for investment during this round differs from seed capital funding rounds due to a higher dose of politics in the mix. Typically, several large firms lead investment play and often strategically position themselves to remain in the lead. Angel investors do invest during this round; however, their influence is usually limited.