Shopping Cart

No products in the cart.

Should you raise Seed or Series A?

Fundraising is all about the timing. Pre-seed, seed and Series A+ have very different requirements. So if you’re about to raise seed funding for your startup, there are a number of things you’ll need to show investors so they get onboard.

If you aren’t sure whether you should raise seed or Series A, in this article we give you all the different things you must have before raising one or other. Let’s dive in!

3 Must Haves to Raise Seed

1. You have a MVP

As explained in our article here, pre-seed and seed funding are 2 very different things. Whilst pre-seed often comes from friends & family money (or sometimes angels), it is often limited to $250k maximum.

Pre-seed is literally to get startups off the ground so that founders can start working on product and prepare a MVP.

Therefore, seed financing only happens once you have already built a MVP. Only then you can show investors a working product for which you would ideally have early-adopters.

Early-adopters will allow you to refine and adapt your product so that you can find product-market-fit later on, and hopefully reaching out to customers more aggressively at Series A stage.

This explains why seed startups that don’t have yet a MVP don’t succeed in getting funded. Investors (angels and seed VC funds) turn down their pitch decks as they’re only at the idea phase.

If you want to increase your chances of getting seed funding, make sure you already have early traction (early-adopters for your product). This isn’t a must, but a nice-to-have for seed startups.

2. You have a complete co-founding team

Seed startups need to have a complete co-founding team.

This doesn’t mean you need to fill all the key management positions before raising seed funding. If you’re missing a CMO and/or a CSO, that’s ok. Yet, don’t try to raise seed funding if you have a tech-enabled product but you’re still looking for a CTO.

3. You have a solid narrative

Seed financing rounds are notoriously difficult to get as startups are at a cross-road between the idea phase and the sales rollout of their finished product.

As such, seed startups need to convince investors they’re the right investment candidate and they’re able to execute their plan (more on that below).

If you’ve already started building your pitch deck, this is what you need to show with the problem and solution slides.

The key question you should be able to answer is: why now? The questions takes multiple forms, the more answers you can find, the better:

  • Why is your solution relevant to the problem you’ve identified?
  • Why you? What is it that you can relate to the problem at the personal level?

Expert-built templates for tech startups

  • Investor-friendly
  • Easy-to-use Excel & PPT templates
  • CPA-developed financials
  • 30+ charts and metrics

6 Must Haves to Raise Series A

1. You have found product-market fit

The first thing you would need to prove to investors when pitching is that you already found product-market fit.

Finding product-market fit shows that you have found early-adopters for your product. This makes a huge difference from an investor point of view as it means your business can actually generate money.

Also, early-stage startups that found product-market fit can communicate to early-adopters to consistently improve their product (which can sometimes lead to a pivot).

How can you validate product-market fit?

Some might say by showing a chart of your users, customers or simply revenue. That’s partly true, but imperfect.

Instead, investors will also want to see things such as cohort analyses, adoption rates: anything that shows that not only you acquire customers, but they keep using your product over time. Logically, the more the better.

A typical product lifecycle with early-adopters validating product-market fit
A typical product lifecycle with early-adopters validating product-market fit

2. Demonstrate Traction

The 2nd most important thing investors care about for startups Series A fundraising is traction.

Traction can be calculated in different ways and over various time scales. All in all, traction shows investors you are not only growing but fast.

Series A investors will want to see patterns suggesting a business will experience hockey-stick growth. Remember: Series A investors are looking for anywhere between 10 to 100x return on investment. So if you can’t demonstrate exceptional future growth, they simply won’t be interested.

How can you demonstrate traction?

First, choose a metric. This will depend on the type of business you have. It might be the number of customers, your Monthly Recurring Revenue (MRR) or simply revenue.

Then, choose a timeframe. 12 months is ideal, but you can have shorter time scales instead (6 or 9 months). Avoid short time scales as they’re not necessarily relevant, especially if your business is seasonal or cyclical.

Finally, calculate the month-on-month growth rates over that period. Anything above 10% is good, 15% great, and anything above 20% exceptional.

Series A startups fundraising
10% and 20% month-over-month growth makes a big difference on investor returns

3. You have proven attractive unit economics

The third step of your Series A fundraising checklist is proving your startup has attractive unit economics.

For startups, unit economics are metrics (operational e.g. users or financial e.g. revenue) that are calculated on a per-unit basis. The unit, often is a customer (or user).

Common unit economic examples are:

  • Average Revenue Per User (ARPU)
  • Customer Acquisition Cost (CAC)
  • Customer Lifetime Value (LTV)

Investors care a lot about unit economics for Series A startup, more so than seed startups. Why? Series A investors will want to see at some point in the future profitability. In other words, your business will not only need to generate revenue but also profits.

Of course, your startup might not be profitable for the next 3 to 5 years as you scale up and invest in growth. Yet, the investment itself needs to make sense.

A good example of that is the famous LTV:CAC ratio: how profitable is your acquisition strategy? For example, it makes sense to spend $500 to onboard a customer if you can reasonably expect this customer to bring you $2000 over her/his lifetime.

Fundraising checklist for Series A startups
LTV:CAC ratio dashboard of one of our financial model templates

4. You aim big

As explained earlier, Series A investors are looking for significant return on investment. Therefore, in order for you to successfully raise your Series A, be ready to show a long-term path to $50 million revenue at least.

Of course, this doesn’t need to happen within the next 5 years. But you will need to show investors you market is big enough for you to capture $50+ million revenue from it at some point in the future.

If you aren't sure how to show investors how big your market is, make sure to read our article on how to estimate TAM, SAM and SOM for your startup.
The market slide of our pitch deck template

5. you have a clear plan

This might sound obvious but it isn’t necessarily.

You are raising capital for your Series A to reach/complete certain milestones. These can be, for example, reach a certain amount of customers, revenue, launch a specific product and/or product feature, or simply profitability.

When you raise Series A, you need to make this clear to investors: what is your goal for this round? Are you focusing on growth or profitability?

Think about this: many startups could actually be profitable much earlier than they actually turn out to be. The reason why is because founders and investors would rather invest further into growth before focusing on profitability. There can be a number of reasons for that, most often it’s to reach a certain scale to increase barriers to entry and the business’ defendability.

If you haven't do so, make to read our article on the top 10 deal questions VCs will ask for your fundraising round.

Expert-built templates for tech startups

  • Investor-friendly
  • Easy-to-use Excel & PPT templates
  • CPA-developed financials
  • 30+ charts and metrics

6. You can show reliability

Investors try to minimise investment risk: the risk that the startup doesn’t perform as expected, or worse, go bankrupt.

This risk is mitigated by a number of factors. One of the most important is the reliability of the founding team in its objective and execution.

If you can show investors that you have so far developed your startup according to your earlier plans, it gives you many more chances of scoring another round than you might think.

Of course, startups are by default risky, and their future is uncertain (not to mention their financial projections).

No one really knows if you can reach 10k users by next year, or $50k MRR. Still, one can easily judge whether you reached the milestones you set yourself in the past. Did you spend 6 months on your MVP development as expected, or 12? Did you launch your latest product feature on time or was it delayed?

Remember: a plan is all the more effective in the eyes of investors if you can prove them you have executed yours without any significant problems so far.

Pitch deck template roadmap slide
Prove you have executed your roadmap so far (source: pitch deck template)

How to Raise Funding for your Startup

Step 1: Choose The Right Timing

The first step in raising seed funding is to do it at the right time. It might sound obvious but it isn’t necessarily. Getting your venture off the ground or the urgent lack of cash aren’t good enough reasons to go and raise seed funding.

A startup that want to raise seed funding must be at a certain growth stage. Otherwise, it isn’t seed funding but pre-seed (friends and family, etc.). It’s very important to get it right as you might waste precious time reaching out to the wrong investors.

For a detailed explanation of the key differences between pre-seed and seed financing, read our article here.

Choosing the right timing means making sure your startup have what it takes. Among other things, your startup will need to prove investors it has:

For more information on what you need to have before you start reaching out to seed investors, read our checklist article on the 7 must haves for any seed fundraising.

Step 2: Determine How Much You Need

Entrepreneurs sometimes overlook this important point as they wrongly think raising more is always better. It isn’t.

This is very important as it demonstrates investors you have done the work in preparing your financial projections. As such, you are a clear idea of where you want to go, and how much you will need to get there. You also understand what is your runway, breakeven, cash burn and all these sorts of things investors will ask for.

For more information on how to assess much you should actually raise (and why more is not always better) check out our article here.

Step 3: Pick The Right Funding Source

When you raise seed funding for your startup, you need to know where to look first. This means answering 2 separate questions:

Which instrument should you use?

Are you looking to raise debt or equity? By debt you should actually understand convertible debt: a form of debt that converts into equity under agreed conditions.

2 of the key advantages of convertible notes are the fast access to funds, and the fact that it doesn’t require to set a valuation (which takes time).

With equity, in comparison, you agree with investors on your business’ valuation to determine the percentage ownership you will have to sell as part of the round.

Where to look for funding?

Are you looking for institutional investors, angels or crowdfunding? Each investors have their own processes and requirements. Shooting for all of them is a major mistake, again you might lose precious time whilst you should remained focused instead.

Of course, it’s totally fine to combine some: angel investors and institutions (VC funds) for example. These 2 often invest together. Actually, you will have to find a lead investor (often a VC fund) who will negotiate the term sheet, before other investors jump into the deal.

For a full list of the 7 different investor types for startups, read our article here.

Step 4: Get Your Pitch Deck Ready

Before you actually reach out to potential investors, you will need to prepare your startup’s pitch deck and financial projections.

Create your pitch deck

There are countless companies, now worth billions of dollars, that raised Series A in the 2000’s and early 2010’s with unstructured and/or poorly designed pitch decks. Unfortunately for you, this doesn’t happen anymore.

Indeed, over the years, VCs have become more and more stringent when it comes to pitch deck. Make sure your pitch deck looks concise, structured and visually impeccable.

If you need help to build a pitch deck for your startup, have a look at our article here.

Build your financial projections

Your pitch deck will need to include your financial forecasts. Generally, 3 years of financial forecasts are enough for most seed investors, but you can opt for 5 years as well.

Founders sometimes overlook the importance of their financial projections. Be careful: they aren’t a mere tick-the-box requirement. Also, the fact you’re early stage and the future is by nature very difficult to predict isn’t an excuse not to have rock-solid financial forecasts for your startup.

Read our article here on how to build financial projections for your startup.

Step 5: Build an Investor List

The next step to raise seed funding for your startup is to build an extensive list of potential investors.

First, you need to be aware of the 7 different investor types available to you, and which one(s) are more appropriate for you.

Of course, if you’re going via the crowdfunding route, you only need to set up campaigns on the key crowdfunding platforms. Read our articles on the top 15 crowdfunding websites for US and UK startups.

Instead, if you’re going the VCs or angel investors routes, you will need to create a list of key investors you want to focus on. Start with a list of 30 investors, this will be more than enough as a start, if you select the right investors. Have them by priority as well: the ones you will contact first, second, and so on.

You shouldn’t contact all investors all at once for different reasons.

Indeed, you might learn things along the way: your pitch deck isn’t complete, you haven’t thought about valuation or haven’t prepared enough investors questions for example. In this case, you shouldn’t hit your ideal investors at first.

Also, you don’t want to have too many discussions at the same time: your time is precious and you should also focus on your business.

When it comes to selecting the right investors to reach out to, look for things such as: geography, sector focus, growth stage (if they explicitly do seed for example) and whether you have any sort of relationship within an insider.

Looking for angel money? Have a look at our article on how to find angel investors for your startup.

Step 6: Rehearse

The last step before you can raise seed funding for your startup is to rehearse and prepare your pitch.

You should seriously rehearse multiple times your pitch deck so it’s natural. Sure, investors will have your pitch deck in PDF already, yet how you communicate, confidence and body language are very important too. Make a great impression.

Rehearsing isn’t limited to your pitch deck though. Instead, you should prepare key investors questions that may (will) arise during your pitch’s Q&A session.

We have prepared a list of the most important questions investors will ask (and suggested answers), have a look at our article here.

Expert-built templates for tech startups

  • Investor-friendly
  • Easy-to-use Excel & PPT templates
  • CPA-developed financials
  • 30+ charts and metrics