Understanding Start-up funding Options: Seed Vs. Series A
When it comes to venture to fundraise, start-ups confront two major options namely seed round and series A. Choosing the right one for your situation can be a tricky job. However, understanding them rightly will help you decide the best stand that will benefit you both in the short as well as long run.
What are they?
Seed round refers to a series of related investments by 15 or lesser number of investors who will ‘seed’ a new firm with an upper cap of $2 million and the money is used to fund the market studies and product development in the early stage. The investors benefit from equity, stock option or convertible notes.
Series A refers to an investment with an upper cap of $10 millions by a smaller number of angel investors who benefit through series A preferred shares.
Get to know seed round
Seed round funding solely pertains to the start-up stage and the investment helps build the foundation for the business to establish itself and move towards sustainability. In this stage, the founder is just experimenting with the business and it is not necessary for them to know everything. Hence the most important thing is to have experienced investors who can troubleshoot any arising challenges. Seed round enables the founders with enough time to shape the business model, adequate opportunities to connect with the business partners behind the mission, facilitate lower dilution and more capital for future rounds and is more flexible to changes based on market expectations.
Get to know series A
Series A comes into picture while the business model is already developed and established. When you opt to receive series A funding, you are expected to grow fast. Hence it is necessary to have the product market fit as well as established systems that will help multiply the revenue within a short time. The key advantages of series A funding include the ability to grow faster with the help of more cash and larger partners. It assures a better recognition within the community.
Working with the options
Since seed round will give you the flexibility and time needed to stabilize your business, it is essential to go through this step before raising series A capital. Nevertheless, skipping this step and directly jumping into series A makes sense when the start-up needs a large amount of capital that is not possible to get through a seed round and when the founder is almost certain of generating the revenue straight away.