Series A funding is a critical intermediary step in launching a company. But how do you secure Series A funding, anyway?
A startup which is eligible for and receives Series A funding has a minimum viable product which it can develop further while the business undergoes further refinement. In a nutshell, Series A funding is the bridge between getting the business off the ground and reaching a wider market.
In this article, we will examine what it takes to compete for Series A funding, with a particular focus on the climate and sustainability sectors, and how a chief operations officer can position your business to attract Series A investment.
Startup funding stages
There is a defined sequence to funding in the startup world:
Bootstrap
Seed
Series A
Series B
Series C
At the Bootstrap and Seed stages, money to get a company off of a ground in pursuit of a minimum viable product can come from a hodgepodge of sources: personal funds, grants, bank loans, loans from friends and family, awards from pitching competitions, etc., although more frequently venture capitalists are becoming involved even at Seed stage. The bridge between Seed funding and Series A, generally speaking, is the availability of a minimum viable product and the potential to generate revenue off of that product.
Series A money is meant only to last between 6 to 18 months and allows a startup to prepare itself for Series B and C stages. To be eligible for Series B funding, a startup has to demonstrate that it is fully operational and proven its business model. Series C capital is meant for expansion.
An investor participating in a Series A financing round, usually a venture capital firm, will have first dibs at stock in the company, which can be in the form of preferred stock, deferred stock, deferred debt, or any combination thereof. How much that is eventually invested at the Series A stage is based on the valuation of the company at present time and an estimate of future worth. Investors that come in at the Series A stage typically become part of the company’s board of directors, influencing management and oversight.
As a startup it is as important to plan how to access funding past the bootstrap and seed stages as it is to plan the development of your product or offering. In fact, a product or service designed without a strategy to attract customers and investment capital from the very start is likely to never get off the ground.
Let’s examine what it takes to compete for Series A funding, with a particular focus on the climate and sustainability sectors, and how a chief operations officer can position your business to attract Series A investment.
What are the criteria for Series A funding?
Here are some universally accepted qualifications for Series A funding:
A minimum viable product (although this looks different for different entities)
A total valuation of more than $1 million – However, there are exceptions to this rule, especially if your company is still private.
A plan to acquire customers and a thorough understanding of the market you wish to pursue
Sound financials – You need to demonstrate that you are a good steward of the resources already available to you if you are going to ask for more money. Your financial house needs to be in order before you can request additional funding from elsewhere, and this includes your accounting and recordkeeping practices.
A reasonable business model – Without a doubt, your current business model needs to be working in order to be ready to compete for Series A funding.
A reasonable business plan – You’ve already produced a successful business plan to reach the point of competing for Series A funding. The deal is now to be able to articulate what you will do with the money you are looking to secure.
A proper management team – Demonstrating competency among your team is a must. The people you have selected to help you run your company will be vetted for their skills, professionalism, and sense of sound judgment just as much as your product and your financials. Your current operations should be running like a well oiled machine.
So, how do you secure Series A funding?
After ensuring you meet the critical requirements listed above, there are a few other factors that you need to consider before attempting to secure Series A funding.
Timing
Timing is everything when it comes to chasing after funding.
It can take between 9 to 12 months after receiving Seed money for a startup to begin the process of attracting Series A investors. The rate limiting step to Series A investment readiness is the ability to demonstrate viability in terms of customer acquisition, engagement, business model.
Also, even as you work to attract Series A funding, you should begin planning for acquiring Series B investment.
Finding and approaching Investors
There are numerous resources available on the web to search for an appropriate Series A investor.
Every potential investor is going to perform its due diligence on your business. Likewise, you should investigate your potential investors with the same level of scrutiny.
Finding the right VC for your startup may involve screening potential Series A investors for non-negotiable attributes such as:
Industry and fit – A potential investor should have experience in your industry and with firms analogous to yours.
Stage fit – Don’t waste your time and theirs if Series A is not their jam.
Alignment – If there is a major misalignment between your vision and theirs, look elsewhere.
Track record – This requires you to do your own market research. Find other founders which your potential investor has previously funded and ask them about their experience.
Network and expertise – Money is only a tool and a means to an end. How well you are able to utilize Series A funding is also based upon what networks and types of expertise that your potential investors have access to, and this is definitely a talking point when speaking with other founders that the investor has previously worked with.
Autonomy – Whoever you accept funding from has to give you enough space and trust to allow you to run your company but to provide support when necessary.
Fine print – The terms of any agreement you sign with an investor should be clear, understandable, and reasonable. If they aren’t, look elsewhere.
Funding strategies for climate focused startups
Unless your climate tech startup is solely software-based (e.g., energy management software) it may be a challenge to access funding. How climate tech startups should approach fundraising can depend – but it may require 5-6 times the upfront investment as a non-climate technology startup.
The challenges facing the climate tech industry are unique, so here are some pro tips for climate focused startups:
Performing a thorough risk assessment – If you haven’t mapped out your risk environment and cannot demonstrate your understanding of those risks, no serious investor will give you the time of day.
Understanding the supply chain and other logistical issues – If you want to build a factory that requires access to a seaport in the middle of Kansas, and you have no clever and feasible workaround to offer, expect an investor not to walk, but run!
Seeking public funding – The Inflation Reduction Act in the United States and the EU Innovation Fund have special provisions to help businesses in climate, especially in the energy and industrial sectors. Competing for and winning public awards bestows a level of trust because founders and their companies must undergo incredible levels of scrutiny before, during, and after the funds have been issued to ensure that the public’s tax dollars are being used properly and within the confines of the law.
Funding strategies for sustainability focused startups
As with climate tech startups, if your sustainability focused startup develops software for ESG reporting or some other offering that is reliant on code and not physical assets or manufacturing, the funding that you will require will be less and perhaps easier to attain.
In addition to the guidance above on climate focused startups, if there is any alignment with your startup with the AI space, capitalize on that relationship. AI and AI-adjacent startups are attracting gobsmacking high amounts of capital from venture capitalists and also from government programs across the globe.
Get help from an experienced tech fundraiser and board director
A great idea and a business plan are simply not enough to capture the Series A funding that your startup deserves. In addition to running your business, you need to carve out time in your schedule to adequately plan and prepare for seeking Series A investment opportunities. Why go it alone, though, and risk missing out on a life-changing opportunity?
I'm now focusing on leveraging my extensive experience to guide tech companies that have reached a significant milestone—$1 billion USD in annual recurring revenue (ARR). As a seasoned professional with over two decades of experience in tech and entrepreneurship, I am dedicated to serving on boards, offering strategic oversight and governance to drive growth and sustainability.
Elevate your company’s strategic direction with my expertise. Join the ranks of leading tech companies that benefit from my insights and leadership. Contact me today to discuss how my board membership can propel your organization to new heights.
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