Series A round

A Series A round is the name typically given to a company's first significant round of venture capital financing. The name refers to the class of preferred stock sold to investors in exchange for their investment. It is usually the first series of stock after the common stock and common stock options issued to company founders, employees, friends and family and angel investors.

Description

Series A Preferred Stock is the first round of stock offered during the seed or early stage round by a portfolio company to the venture capital investor. Series A preferred stock is often convertible into common stock in certain cases such as an IPO or the sale of the company.

Series A rounds are traditionally a critical stage in the funding of new companies. A typical Series A round is in the range of $2 million to $10 million,^[1] purchasing 10% to 30% of the company.^[2] The capital raised during a Series A is usually intended to capitalize the company for 6 months to 2 years as it develops its products, performs initial marketing and branding, hires its initial employees, and otherwise undertakes early stage business operations.^[3]

Sources of capital for Series A rounds

Because there are no public exchanges listing their securities, private companies meet venture capital firms and other private equity investors in several ways, including warm referrals from the investors' trusted sources and other business contacts; investor conferences and demo days where companies pitch directly to investor groups. As equity crowdfunding becomes more established, startups are increasingly raising part of the their Series A round online using platforms such as Onevest or SeedInvest in the USA and Seedrs in the UK.^[4] These blended rounds include a mix of angel investors, strategic investors and customers alongside the offline venture capital investors.^[5]

Structure of Series A rounds

Smaller investment amounts are usually not worth the legal and financial expense, the burden on a company of adjusting its capital structure to serve new investors, and the analysis and due diligence on the part of institutional investors. A company that needs money for operations but is not yet ready for venture capital will typically seek angel capital. Larger amounts are usually unwarranted given the cost of business in fields such as software, data services, telecommunications, and so on. However, there are routinely Series A rounds in excess of $10 million in fields such as pharmaceuticals, semiconductors, and real estate development.

Series A rounds in the United States venture capital community, particularly in Silicon Valley, are widely reported in business press, blogs, industry reports, and other media that cover the technology industry. Series A rounds also occur in non-technology industries and receive investment from investment banks, corporate investors, angel investors, public agencies, and others, that receive less press coverage than technology startup funding rounds. They all share a similar legal and financial framework, but specific terminology, deal terms, and investment practices vary according to business customs within different countries, business sectors, investor communities, and geographical regions.

See also

• Angel investing
• Equity Crowdfunding
• Preferred stock
• Private equity
• Securities offerings
• Seed money
• Venture round
• Venture funding

References

Private equity and venture capital Basic investment types Buyout Venture Mezzanine Growth Secondaries Equity co-investment History History of private equity and venture capital Early history of private equity Private equity in the 1980s Private equity in the 1990s Private equity in the 2000s Terms and concepts Buyout Financial sponsor Management buyout Divisional buyout Buy–sell agreement Leveraged recapitalization Dividend recapitalization Venture Angel investor Business incubator Post-money valuation Pre-money valuation Seed money Startup company Venture capital financing Venture debt Venture round Structure Private equity firms and funds Limited partnership Limited liability company Carried interest Management fee Publicly traded private equity Business Development Company Venture capital trust Private investment in public equity (PIPE) Pledge fund Investors Corporations Institutional investors Pension funds Insurance companies Fund of funds Endowments Foundations Investment banks Merchant banks Commercial banks High-net-worth individuals Family offices Sovereign wealth funds Crowdfunding Related financial terms AUM Cap table Capital call Capital commitment Capital structure Distribution waterfall EBITDA Envy ratio High-yield debt IPO IRR Leverage Liquidation preference M&A PME Taxation of private equity and hedge funds Undercapitalization Vintage year Private equity and venture capital investors Private equity firms Venture capital firms Angel investors Portfolio companies