Series A Funding

A young company needs money before it earns enough to sustain itself. In the beginning, this money usually comes from the founders themselves, from friends, or from individual wealthy private people. These first small amounts are enough to try out an idea and build an initial product. Series A funding is the next stage: the first major round in which specialized financiers get involved. They pay several million euros and receive a share of the company in return, that is, a piece of ownership. The name comes from the fact that these shares are legally issued as a separate class of stock, namely class A.

Typical amounts today range between about five and thirty million euros. The range is wide and depends heavily on the industry. A software company needs less starting capital than a company developing chips or medications.

The round that decides growth or the end

Series A is considered the toughest hurdle in a startup’s life. For the very first round of financing, a convincing idea and a good team are often enough. From Series A onward, investors want to see evidence: paying customers, growing user numbers, recurring revenue. Many companies never manage this leap and shut down once the first money runs out. In the industry, this gap between rounds is also called the “Series A chasm.”

For the founders, the round also changes the balance of power. They typically give up between 15 and 25 percent of the company. The new investor usually gets a seat on the oversight board and has a say in important decisions. Whoever decided alone before now has to coordinate with others.

The signal sent to the outside world is also important. A successful Series A shows others that experienced professionals have examined the business model and consider it viable. This makes it easier to hire good employees and to raise further rounds later on.

From pitch to signature

It starts with the search for financiers. These are usually venture capital firms, that is, companies that raise other people’s money and invest it specifically in risky young companies. The founders present their business in short presentations, the so-called pitch. Of a hundred investors approached, often only a handful show serious interest.

Anyone wanting to invest then thoroughly examines the company. This examination is called due diligence and often takes several weeks. Contracts, figures, patents, and employment relationships are reviewed. It can also happen that a deal falls through at the last minute.

The central question is what the company should be worth. If ten million euros are invested at a valuation of forty million, the investor then owns twenty percent. Usually one investor takes the lead in the round, the lead investor, and others join in with smaller amounts. In the end, there is a contract that also regulates special rights, such as the investor getting their money back first in the event of a sale.

Series A announcements in tech news

Hardly a week goes by without headlines like “AI startup raises 20 million in Series A.” Such announcements are a good gauge of which topics are currently considered promising. In recent years, noticeably large sums have flowed into companies related to artificial intelligence, sometimes at valuations that would have been unthinkable not long ago.

After Series A, the counting continues: Series B, Series C, and so on. Each round is normally larger and serves a different purpose. Series A finances the buildup, later rounds finance international expansion. All of this should not be confused with an IPO, in which shares are sold to the general public.

A common misconception is that a large round already means success. Money raised is not profit, but an advance on an expectation. Many companies with a large Series A no longer exist today. What matters more than the amount, therefore, is how long the money lasts and what the company achieves during that time.