New fundraising rounds aren’t just exciting for startups; they also make a statement to competitors, current investors, customers, and the general public about a startup’s value and its prospects for the future.
This is especially true during the Series A round. For most startups, the Series A is their first significant round of outside funding. Whereas earlier stages of the startup might rely on smaller sums of seed funding from friends, family, crowdfunding, and angel investors, the Series A round is the first time most startups raise substantial money to fuel meaningful growth.
During the Series A round, companies typically trade a 10%–30% stake in the company in exchange for preferred stock, so the risk is higher for this particular round of funding. Which investors join, which investors notably don’t join, and the amount raised all speak to where the company stands and—more importantly—where investors see it going.
If you’re a founder of an early-stage startup, you’re probably wondering when to raise your Series A funding. Picking the most advantageous moment to present your pitch deck can be as important as having impressive performance metrics and projections.
There are a few signs that the timing is right for your startup to raise Series A funding.
You have strong traction
The most important factor in timing your Series A funding is traction. Strong month-over-month (MoM) growth is 12%–20% or higher—the sought-after hockey stick growth projection that excites investors.
Start connecting with investors when your MoM growth trend is thriving, and you can offer sound reasons why this is likely to continue or even increase. If your growth is steadily climbing at 5%–10% MoM and you anticipate growth taking an upward turn soon, you might want to wait until then to raise your Series A funding.
You have an active investor network
Build and maintain relationships with investors as far in advance as possible before you plan to pitch them. It’s significantly harder to successfully commit an investor with a cold pitch. Talk to a lot of venture capitalists (VCs), knowing that you won’t pitch to all of them.
You have significant growth
VCs want to support high-growth companies, so make sure your growth metrics are in the right range to appeal to them. Maybe you’re tracking 50% MoM growth, but your revenue is lower than what investors are looking for.
If you’re not sure what level of growth will make investors take notice, ask other founders in your industry or investors in your network who might know. This is another reason to build active relationships with investors before you ever pitch them. They’re usually happy to give insights on what they do and the thinking behind how they do it.
You have demonstrated product-market fit
There’s no set formula for measuring product-market fit, let alone proving it. It’s loosely defined as proof that what your company is doing—what goods or services you provide—is successfully filling an existing gap in the market. Earlier in your startup journey (like when you’re raising seed money), you have to prove that the market opportunity exists and that you and your team have the right idea and skill set to fill it. But when you’re raising a Series A, you need to demonstrate more than potential—you need to show that you’re actually hitting the mark. Make sure you’re highly confident about the story you’re telling to prove product-market fit before pitching for your Series A funding.
Your revenue is growing
Customer metrics like traffic, retention, and engagement are essential measures of company health, but you need revenue growth to get VCs to invest. When revenue growth is there, customer metrics will further validate what’s working and why. Investors want to feel confident that you’re going to make their money grow.
You understand your growth strategy
When you pitched to investors for your seed round of funding, you might have communicated that you would explore a variety of channels for business growth. During the Series A round, investors aren’t looking to finance further experimentation. Instead, they want to hear your plan for driving substantial business growth. Once you are clear and specific about what you can do to accomplish that, then you’re ready to have the conversation that Series A investors want to have.