Why Series A Funding Round is Important for Tech Startups
Almost every startup that reaches the market will start with a few early funding stages such as pre-seed, seed, and angel investment rounds. What follows is known as Series A, B, and sometimes even Series C funding rounds. These rounds are what separate the real business successes from the promising ideas that never materialize into full-scale companies.
In this article, we’ll explain the essential information that founders need to know about Series A investment.
What is a Series A investment?
A Series A funding round is done when one or a collection of angel investors or venture capital firms provide significant funding to a startup in exchange for an amount of equity in the company. By definition, this funding is typically in the range of USD $2-10 million. Generally speaking, Series A funding rounds are preceded by a Seed round. However, it’s not uncommon for companies to skip the seed stage and start at a Series A funding round.
To qualify for Series A investment, a startup should have a proven, market-based system and be capable of rapidly growing revenue within one to two years.
A company will be looking to expand via funding if it has an established product and business model, but has yet to scale it in order to generate substantial revenue. This is when the company will look to connect with an angel investor, venture capital firm, or private equity firm. The investor(s) will provide funds to hire personnel and expand in various other areas of business.
Series A rounds help companies grow and scale at an accelerated pace thanks to an influx of cash. Venture capitals typically expect expansion plans to be completed, resulting in considerable growth in revenue. They also look for the company to scale quickly, which can sometimes be overwhelming for a startup if they are unprepared with their market-fit system.
Angel investors and venture capitalists are prudent investors. Potential alone isn’t always enticing enough to get Series A funding, but potential combined with a robust and realistic business plan can do the trick.
The Legal Aspects of Fundraising Startups You Should Know
A strong legal foundation provides a layer of protection from risks for your business and also attracts more investors. But making sure you’re checking all the legal boxes when fundraising a startup can be difficult and confusing, which is why we’re here to help you cross your T’s and dot your I’s.
Simple steps to make sure your startup is legally solid
The words “legal documentation” certainly don’t sound like a party, but without a foundation built out of those two words your startup is vulnerable to falling to pieces. Worry not, for we have put together a collection of crucial legal checkpoints that plenty of startup founders miss or avoid. By following these guidelines, you’ll be better protected from legal troubles that could otherwise sink your startup before it has a chance to succeed.
Deciding what type of business structure is most appropriate
A business structure dictates how a company navigates tax requirements, what liabilities you may encounter, and even how you’ll raise money and collect income. Incorporating under the proper business structure is important as business owners and their companies are liable to a spectrum of different risks depending on if they are a sole proprietorship, a partnership, a limited liability, or a corporation.
Another consideration is that there are various filing fees for incorporating depending on the filing state and the type of business the startup is.
Protecting your property
This is where being thorough and detailed can save lots of time and earn you money. As an owner, it is highly recommended that you take the time to initiate copyrights, patents, trademarks, and even trade secrets to anything you have created as the business. This can include logos, video, sound bites and music, coding, inventions, software, designs, written word, and much more. Anything that you originally created can be protected legally.
This step generally catches investors eyes as it shows you are well prepared and don’t miss the finer details.
Note that business owners in the United States are now able to complete this step with assurance as the United States Patent and Trademark Service is a “first-to-file” system, rather than a “first-to-invent”.
Searching for investments in the right places
The SEC is very particular about startups advertising, and prohibits general advertising and soliciting when it comes to raising capital. This is why it is suggested to offer and sell securities to an accredited investor(s) which may include a natural high-net worth individual, a bank, insurance company, broker, or trust.
Signing contracts and agreements
Issuing employee contracts and NDAs can save your company’s confidential information, protect you and your employees, and determine who has the rights to certain information. Non-disclosure agreements are meant to protect a company’s business strategy, trade secrets, etc… However, it should be noted that many investors won’t agree to signing an NDA so they aren’t liable if they choose not to invest.
In this case protecting your property through patents and copyrights can be your safety net.
Don’t do it yourself. Hire experts
Perhaps the best advice we can leave you with would be to hire a lawyer to make sure your company’s legal prospectus is air tight.
Hiring employees, attracting investors, producing income, building a business structure, and the safety of your company all rely on the legal foundations that you put in place. It’s worthwhile to make sure you get it right.
