Venture Capital for Startups: Series A, B and C
From our friends at Embroker.com
Venture capital. It’s an exciting concept for startups and often uncharted territory. Like other businesses who’ve gone through seed stage investments and received funds from angel investors, this money has helped move your startup from ideation to early product development. Seed funding, while an important step in a startup’s life cycle, is not enough to get a business to profitability but is a way to reach the next funding milestones: Series A, B and C.
Venture capital (VC) funding has helped many startups reach booming success levels due to a jump funding. This money allows startups to expand marketing efforts and in turn reach their goals.
Series A is essentially an entrepreneur’s move into the big leagues and the first stage of VC funding. If you’re lucky, you might have raised tens of thousands of dollars in your seed rounds or from angel investors. VC rounds invest millions of dollars.
In this case, you might be wondering when it’s time to move forward with VC funding. Truth be told, there’s no hard fast rule that says a startup is read for Series A. However, some investors review annual recurring revenue (ARR) as a method to decide if a company is ready for Series A. It’s a good ballpark range, yet others even consider startups with an ARR as low as $600,000 all the way up to $3 million.
Naturally, Series B funding comes next. In this stage, investors put an emphasis on growth rates and historical performance, in addition to the ARR. These metrics aren’t typically considerations in the early stages of a business, but you can count on them when you move onto Series B.
To put it in perspective, the average Series B funding in 2018 was greater than $24 million dollars. This reveals why many investors expect Series B-funded companies to grow three times following the investment.
Series C funding is known as the highest level of investment and introduces influential investors such as private equity and hedge funds. If you reach Series C funding, it’s likely that you have experience negotiating and working with venture capitalist firms, which is why these rounds are typically $50 million or more.
With large sums of money, comes a lead investor who’s responsible for managing negotiation meetings. Furthermore, topics like due diligence and pro-rata rights are discussed at this stage of funding.
Of course, getting to these stages requires some best practices. To help startups navigate the venture capital ecosystem, Embroker put together this guide to raising venture capital that will help prepare you for your first VC meeting, craft a successful pitch deck, decode a Series A term sheet and consider additional factors like D&O insurance.