Loading the player...

What is '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'

Series A financing is typically 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.

RELATED TERMS
  1. "A" Round Financing

    When startups pursue the next level of funding after seed capital, ...
  2. Series B Financing

    Series B financing is the second round of financing for a business ...
  3. Venture Capital Funds

    Venture capital funds invest in early-stage companies and help ...
  4. Startup Capital

    Startup capital is the money that is required to start a new ...
  5. Wash-Out Round

    A wash-out round is when the owners and management of a company ...
  6. Dilution Protection

    Dilution protection is a provision that seeks to protect existing ...
Related Articles
  1. Small Business

    How To Raise Seed Capital and Grow Your Startup

    To get a business off the ground, entrepreneurs need a clear understanding of how to strategically position themselves for VC firms and angel investors.
  2. Small Business

    Is Equity Financing the Right Choice for Your Business?

    Discover the benefits and drawbacks of equity financing for a small business, and learn when equity financing should be used instead of debt financing.
  3. Small Business

    Does Your Startup Need Venture Capital Money?

    Venture capital funding provides capital to grow a business. However, entrepreneurs will also lose some control over business decisions.
  4. Small Business

    Fed Raising Rates Affects Startup Funding

    With interest rates having nowhere else to go but up, the Fed’s impending interest rate raise will likely begin to reverse the flow of startup funding.
  5. Small Business

    Why Venture Funders Are Shunning Baby Unicorns

    Lost Magic: Many of the 1,500 unicorns that won funding in early 2015 may run out of cash as unders set higher expectations.
  6. Investing

    How Social Venture Capital Is Changing the World

    Learn what social venture capital is and the ways in which it differs from traditional venture capital. Identify two leading social venture capital firms.
  7. Managing Wealth

    Analyzing GE's Preferred Stock (GE)

    Learn why General Electric Company's new Series D Perpetual Preferred stock is an excellent choice for investors desiring a safe and steady income stream.
  8. Small Business

    China's Cash Flood Into American Startups

    The Hunt for Unicorns: China venture capitalists are accelerating their investments in U.S. startups. They may want to rethink their negotiating style
  9. Small Business

    10 Fastest Growing Social Ventures in 2016

    The success of these social ventures embodies a new hybrid business model that will lead the global economy into a greener, more sustainable world in 2016.
  10. Personal Finance

    The Series 79 Exam: What It Is And When You Need It

    If you're getting into the field of investment banking, you'll need to know all about the Series 79.
RELATED FAQS
  1. How is venture capital different from other kinds of equity financing?

    Learn how venture capital equity financing differs from other funding options and what companies need to be aware of prior ... Read Answer >>
  2. What type of funding options are available to a private company?

    Understand how private companies can obtain financing for startup, growth or expansion projects, and learn how this differs ... Read Answer >>
  3. Do financial advisors have to be licensed?

    Understand why all financial advisors have to be licensed, and identify the specific licenses you must obtain to carry out ... Read Answer >>
  4. What are the types of share capital?

    Companies obtain share capital by selling ownership shares to the public. The two types of share capital are common stock and preferred ... Read Answer >>
Hot Definitions
  1. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  2. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  3. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  4. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  5. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  6. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
Trading Center