In 2022, Nigeria-based HR startup — SeamlessHR — raised a $10 million Series A in one of the most impressive funding rounds in Africa. Today, the company is one of the most recognizable names in the African HR technology space — helping African businesses grow efficiently with a modern end-to-end HR management system. But how exactly did Series A funding help them reach this milestone?
A Series A represents the first significant round of venture capital (VC) funding that a startup receives. This round typically occurs after the startup has successfully raised seed funding and made substantial progress in market validation and product development.
In this article, we’ll explore how Series A funding works, when you should seek it, and how to find VC investors. We’ll also discuss how long it takes to secure Series A, how long it lasts, and what comes after it. Let’s begin!
How does Series A funding work?
Series A funding is often a pivotal moment for a startup as it allows a company to fuel its growth and expand its operations. During this funding round, your startup offers a percentage of its equity to investors in exchange for a substantial amount of capital.
However, you determine the exact terms of the deal (such as the company valuation and the percentage of equity offered) through negotiations with the participating investors.
This funding round is typically led by one or more venture capital firms who believe in your startup’s potential and see it as a promising investment opportunity. These firms not only provide the necessary funding but also bring valuable expertise and industry connections to the table.
Their participation also often increases your business’s credibility and can attract additional investors (in later funding rounds).
However, once the terms of the deal are finalised, the funds raised during the Series A round are typically used to hire key talent, scale the startup’s operations, further develop its product or service, and invest in marketing and sales efforts.
The ultimate goal is to achieve sustainable growth and build a strong foundation for future success.
When should you seek Series A funding?
Deciding when to seek Series A funding depends on several factors — including the nature of your startup, its growth trajectory, and market conditions. However, in general, startups typically seek Series A funding when they have achieved certain milestones that demonstrate their potential for future growth.
These milestones include:
- After successfully launching a product or service
- After generating a significant amount of revenue or user traction
- After securing partnerships or contracts with key players in the industry
- After reaching a certain level of market validation
Still, we must mention that the specific milestones required for Series A funding may vary depending on the industry and the investors’ preferences. It also depends on you as a founder — the right time is when you decide it is.
But while there is no universal timeline for seeking a Series A, startups often try to raise between 12 to 36 months after their initial seed funding. This timeframe allows the company to demonstrate progress, validate its business model, and create a compelling case for future growth.
How to find investors for Series A funding
Finding investors for Series A funding can be challenging, but several strategies can increase your chances of success.
Here are some ways to find investors for your Series A round:
- Apply online. Most VCs and angel investors have websites you can use to contact them directly. For example, you can visit our founder application page to submit your pitch. We review every application and will contact you if we love your ideas.
- Build relationships in the industry. Attend industry events, conferences, and networking sessions to connect with potential investors. Building relationships and establishing rapport early before you need it can significantly increase your chances of securing funding.
- Tap into your existing network. Leverage your connections, including friends, family, mentors, and advisors, to seek introductions to potential investors. Personal referrals often carry more weight and increase your credibility.
- Use online platforms. Various online platforms connect startups with investors, such as AngelList, Crunchbase, and Gust. These platforms allow you to showcase your startup and connect directly with investors who are actively seeking investment opportunities.
- Seek the guidance of a startup accelerator or incubator. Joining a reputable startup accelerator or incubator can provide you with access to a network of investors and mentors who can help guide you through the fundraising process.
- Hire a fundraising consultant. If you have the resources, hiring a consultant specialising in fundraising can be a valuable investment. These consultants have extensive experience and networks in the venture capital industry and can help you navigate the fundraising landscape.
By implementing these strategies and staying persistent, you can increase your chances of finding the right investors who believe in your vision and are willing to invest in your startup’s growth.
How do investors evaluate startups for Series A funding?
Investors always conduct due diligence on startups to confirm their market position and scalability.
Some common factors that investors consider for Series A funding include:
- Market potential. Investors assess the size of the market, its growth potential, and the startup’s ability to capture a significant portion of it. They look for startups operating in large and high-growth markets (like Africa) with a competitive advantage.
- Team. Investors place a significant emphasis on the startup’s team. They evaluate the founders’ experience, skills, and ability to execute the business plan. A strong and cohesive team (think a team like Paystack’s) can greatly increase the chances of closing a Series A.
- Traction and validation. Investors want to see evidence that the startup’s product or service is gaining traction in the market. This can be demonstrated through metrics such as revenue, user growth, customer testimonials, or customer acquisition milestones.
- Unique value proposition. Investors look for startups that offer a unique and differentiated value proposition. They want to see a compelling reason why customers will choose the startup’s product or service over competitors.
- Business model. Investors evaluate the startup’s business model to ensure it is scalable and sustainable. They assess the revenue model, cost structure, and potential for profitability.
- Competitive landscape. Investors analyse the competitive landscape to understand how the startup differentiates itself from competitors. They want to see that the startup has a clear competitive advantage, strong differentiators, and a practical strategy for overcoming potential challenges.
Investors may also seek references from customers, partners, and industry experts to validate the startup’s claims and capabilities.
How much can you raise from a Series A?
On average, startups aim to raise between $2 million to $10 million in Series A funding. However, it’s important to note that some startups may raise significantly larger amounts, while others may raise less. The specific amount you can raise depends on your business needs, growth plans, and the valuation of your company.
It’s worth mentioning that raising too much capital can also have its downsides, as it may dilute ownership and increase the pressure to achieve high growth rates to justify the valuation.
Therefore, it’s essential to strike the right balance between fundraising and maintaining control over the company.
How long does it take to raise a Series A?
In general, the process of securing Series A funding can take anywhere from three to six months. However, it’s important to note that this timeline can be longer or shorter depending on the circumstances. It often involves multiple rounds of meetings, due diligence, negotiations, and legal procedures.
You should be prepared to invest a considerable amount of time and effort into the fundraising process. So, plan accordingly so you don’t run out of money before you get additional funding.
It’s crucial to have a clear and compelling investment thesis, a detailed business plan, and a compelling pitch deck to effectively communicate the startup’s value proposition and growth potential to investors.
What comes after Series A funding?
After securing Series A funding, your startup will enter a new phase of growth and face new challenges and opportunities. So, what can you expect?
The following are typical post-Series A:
- Scaling operations. With the support of Series A funding, the startup can expand its operations, hire more employees, invest in infrastructure, and accelerate its growth trajectory.
- Continuing product development. Series A funding provides the resources to further develop the startup’s product or service, improve its features, and address any scalability or performance issues.
- Expanding market reach. The startup can allocate funds towards marketing and sales efforts to reach new customers and expand its market share. This includes customer acquisition, branding, marketing campaigns, and strategic partnerships.
- Building strategic relationships. The startup can leverage the network and expertise of its investors to forge strategic partnerships with industry leaders, gain market insights, and access valuable resources.
Series A funding also sets the groundwork for future funding rounds — such as Series B and Series C. Therefore, your startup must continue to demonstrate growth, achieve key milestones, and strategically plan for its future financing needs if it ever wants to move forward.
Final thoughts
We at Ingressive Capital understand the challenges of funding. That’s why we are passionate about bringing financial support to businesses that need it — alongside a strong network to ensure your business grows.
So, apply to join our fund if you’re a pre-seed or seed-stage startup looking to scale across the African continent!
