It’s one thing to fund your small business with the money in your savings and contributions from friends and family, but when you’re dealing with professional venture capitalists for funding, you really need to know what your fundraising options are. At the very least, you should be able to differentiate between the Seed Round and a Series A. This will help you decide which of these options is best suited for your startup funding needs. So, Seed vs. Series Funding Rounds: what’s the difference?
This is the money you raise to fund your initial product development and market research. The Seed Round is the capital a company needs to build a foundation for its new product. Usually, this is a series of investments from about 15 or so investors, which can garner anywhere from $50,000 to $2 million. However, founders also often benefit from the additional knowledge that experienced investors bring to the table.
In exchange for their investments, investors receive a preferred stock option or equity stake in the company. If you are starting a company then these funds help you to tweak your business model, while focusing on gathering crucial business partnerships. The Seed Round allows you to have more time to breathe and make changes to your original plan for action, optimizing your business model and strategy.
Of course, with venture capitalists on board and money in hand, if you’re the founder of the startup then these investors will expect you to actually know what to do with the money they invest in your business because now they are a part of your company.
Series A is a subsequent round of fundraising to the Seed Round, though it’s possible to skip the Seed Round and go directly to Series A. If the Seed Round is all about laying the roots for your foundation, then Series A round is about growing and strengthening the branches.
The name of the round is derived from the fact that these investors tend to expect Series A Preferred shares in exchange for these investments. Series A investors tend to expect that they are the first to receive those preferred shares (which is something to remember when seeking this type of funding).
In this round, the number of investors is usually smaller, but they’re often much bigger partners with larger contributions (averaging $2 million to $10 million). The larger amount of funding is the main reason why some founders “go straight to A’s,” but the downside is that you are often expected to give up a bigger piece of your startup for that bigger chunk of capital.
Seed vs. Series Funding Rounds: Which Is Better?
Seed vs. Series Funding Rounds: which type is best for your business? It’s really a case by case basis, but, in general, there are several good reasons why you may want to start smaller with the Seed Round. With the Series A, the greater investment amount of investment tends to increase the pressure on startup founders, so there isn’t as much time to make changes to the business model. Startup founders also give up more control of their company, which is another piece to consider.
It’s best that you lay down the foundation of your new company before you going to Series A, but if that’s something you’ve already done, then you just might be ready to move to the Series Funding Rounds. Assemble the crucial components of your team, come up with a working business model, and optimize your distribution. Check off each of these goals, secure the funding, and then it’s up to you to use it wisely!