How To

February 3, 2023

Series A funding for startups: What VCs want to see from founders in 2023

Looking to boost your startup’s growth with a Series A round? Here’s everything you need to know, from when to raise to how to find the right investors

Aruni Sunil

13 min read

Radha Vyas, cofounder of Flash Pack

After raising pre-seed and seed funding your attention will turn towards Series A — a key part of the startup process which helps ensure continued growth, sustain improvement of product and attract new talent.

But what exactly is Series A funding? And what are the best practices for founders raising from VCs in 2023?

What is Series A funding?

Series A funding is usually the first round where the startup’s long-term plan for monetisation and profit generation becomes vital to attracting investors.


“A Series A round can help you accelerate your roadmap to realise your mission faster, and it also shows you where you stand — it gives you the confidence that you’re doing something right since there’s clearly investor interest,” says Mika Tienhaara, serial entrepreneur and CEO of Finnish deeptech Rocsole. Rocsole raised a €5m Series A in November 2021.

The key difference between a seed and Series A round is that while at the seed round, investors are betting on a scalable idea and the team behind it, at Series A, the startup has had the opportunity to demonstrate a business model with potential for long-term growth and profitability. 

Mika Tienhaara, CEO of Rocsole
Mika Tienhaara, CEO of Rocsole

Only a fraction of startups that raised a seed round make it to Series A. The average European conversion rate from seed to Series A is 19% within 36 months from the seed.

Series A funds can grow your startup, by kickstarting market expansion or developing new products and services. Rocsole, for instance, used its Series A fund to improve its product and focus on adding value for customers. After a few trials and feedback from early users, the final product was launched in December 2022, a year after its Series A.

👉 Read: 10 types of funding for startups — explained

Radha Vyas, cofounder of UK-based travel startup Flash Pack, agrees that a Series A is critical to boost the growth of your startup. 

“Even if you think you can do without it, it’ll still boost your current growth. And with all the chaos around the pandemic and now the downturn, you need money sitting in the bank to protect you against these macroeconomic shocks,” she says. 

When should you raise a Series A round?

Investors and founders tell Sifted that Series A funding is generally given to companies that generate revenue but aren’t making a profit, and the median time reported from seed to Series A is 18 months. A strong month-on-month growth rate of 15% to 20% is also an indicator that you're moving towards being ready to raise.

“While profitability is desirable at a Series A stage, it’s definitely not a requirement, especially not in the current macroeconomic conditions. Unit economics are super important — having a business that is healthy, so that eventually you can cover team costs, other costs and you are profitable,” says Pavlos Pavlakis, principal at Greece-based VC firm VentureFriends. 

But there’s no concrete answer on when the best time to raise is — it varies between and within sectors. For example, SaaS companies are usually considered ready for a Series A when they cross $1m in annual recurring revenue, according to former YC partner Aaron Harris — but SaaS companies with revenues anywhere between $200k-9m can raise. 

Investors don't just want to see that you've got employees with contracts and IP assignments in place, they want to understand how sticky the culture is, ESG metrics and if the team actually gets a say

Founders tell Sifted that startups usually have between 11 and 60 employees at Series A, depending on various factors such as the sector, so part of negotiating the round will involve deciding which teams need investment to accelerate growth.


How do you raise Series A funding?

It generally takes around two months to get a term sheet — which is an outline of the key terms of the investment, such as how much equity the investors want — and around four to six months to close a Series A round, though the actual pitching process may take only a few weeks. That time frame may be even longer at the moment, as the market downturn has made investors more cautious with their cash.

It’s also key to have a legal counsel — usually an external firm — to make sure the legal aspects of your business are sound. Legal costs can range anywhere between $5,000-50k, depending on the level of diligence, negotiation and drafting required. Your legal paperwork usually includes things like company registration, IP, liabilities, equity ownership and regulatory compliance.

“The increase in due diligence in the market also spills over into legal aspects — VCs want to see financial KPIs, milestones, and from a legal perspective, what underpins all of those things is employment, IP and culture — which has become increasingly important,” says Richard Goold, London-based partner at law firm Wilson Sonsini. 

“Investors don't just want to see that you've got employees with contracts and IP assignments in place, they want to understand how sticky the culture is, ESG metrics and if the team actually gets a say.”

What should you include in your Series A pitch deck?

A pitch deck is a brief explanation of a company’s vision, presented to potential investors at the start of a fund raise, aiming to share key information and make a great first impression. For the perfect pitch deck, Vyas and Luke Edis, an investment manager at Beringea, emphasise the importance of keeping it concise — around 10-15 slides. While it may vary, these are a few elements that a pitch deck must have:

  • The vision: A short and simple overview of the business and the value you’re adding.
  • The problem you’re solving: What pain point are you addressing and who does it affect? Tell a relatable story — make the problem as real as possible.
  • Market size and trends: Data on total addressable market (TAM) and serviceable addressable market (SAM) and how this will grow over the next three to five years. This slide tells the story of the scope and scale of the problem you are solving.
  • The product: All about your product and how it will solve the problem outlined — using images, stories and specs can make this more impactful.
  • Traction and roadmap: This is your opportunity to show that your business works — any early adopters, sales or other proof that shows market pull is key. You can also show monetisation plans and talk about key milestones.
  • Competition: Describe how you’re different from other players and alternatives in the market and why customers will pick you, be it in a crowded or new market.
  • Financials: While this may look different for startups at different stages and in different sectors, it’s key to present it in a simple, straightforward manner — always opt for charts over spreadsheets. You should ideally show your sales forecast, income statement or profit-and-loss statement and cashflow forecast for at least three years. Create the plan yourself but get the numbers checked by other founders, investors or accountants in your network — or you could hire an accountant. Be realistic in forecasts and prepared to explain your numbers. Edis says that VCs also like to see a brief summary of how you plan to use the investment.
  • Founders and team: Investors are often placing their bets on the core team, so highlight your key team members, their successes, expertise and why they’re the right people for the job. “I want to immediately see a slide or two on the founders — the strength of the founding team is most commonly the key driver of success — and you should lead by telling your story and why you’re uniquely placed to understand your product and market opportunity,” says Edis.
Luke Edis, an investment manager at Beringea
Luke Edis, an investment manager at Beringea

How much should you raise at Series A?

Typically, Series A rounds sit between  $2m-15m — although in 2021, the median Series A funding was $10m, as investors were flush with cash and valuations soared. But even though this has dropped amid the downturn, Series A funding across Europe didn’t suffer too much of a blow in 2022: Series A startups brought in around €12.2bn throughout the entire year, compared to 2021’s €12.9bn.

“Though the pace of growth may slow in the downturn, it’s likely that wider economic inflation and the growing maturity of the venture capital ecosystem will continue to drive round size up in the coming years,” says Edis.

Edis says that it’ll be a tough environment to raise Series A for “at least a couple of years” and “VCs will inevitably be much more hesitant and far more careful about deploying capital going into a downturn.

“An increased focus on profitability and cash burn — at a stage of growth not often known for being profitable or low burn — will make it harder for quite a few companies to secure funding,” he adds.

👉 Read: Where should you spend your Series A funding?

How much equity do investors take at Series A?

At Series A, companies usually exchange 15% to 25% of equity for capital from investors. Investors tell Sifted that following a Series A, typically one or two VC funds will own around 30% of shares; angels, the board and management may own another 20% and the rest goes to the founders.

“It's good to have a couple of investors on board — some could be from your earlier stages and some new from your Series A. So if you have three investors after your Series A that can support you alongside a few angels, that’d be great. Then there’s also around 10% of the employee pool, and then you go from there,” says Pavlakis.

How do you find the right investors?

Picking the right investors can be as crucial for startups as picking the right portfolio companies can be for investors. While raising a Series A, founders will have to decide whether to look for generalist or specialist VCs, as well as between new or existing VCs.

“Beringea is a generalist investor, which means we simply look for the fundamental strengths of businesses, rather than getting too caught up in specific sectors or technologies,” says Edis. “For our portfolio companies, this also means that we have a much broader level of expertise and experience, as we’ve got more than 30 years of experience working with entrepreneurs to build great businesses regardless of industry.”

Do your homework before reaching out to investors and find out what they’re looking for in portfolio companies. And if anyone you know can get you a warm introduction — could be your network or an advisory board — that’ll get you way ahead, right away

Tienhaara says that he finds it most useful to use his existing network of founders and investors to find new investors. He says that even if there is no potential for immediate funding, founders must keep their network of investors close. 

“It’s helpful to have regular check-ins to update them on recent growth, traction and milestones, and also ask for tips or advice — it also helps in building trust over time and can lead to warm intros to other investors in their network,” he adds. It was from a warm introduction that Rocsole acquired funding from Springwest Capital, one of its main investors at Series A.

Teinhaara says that with investors who are not directly in your network, an introduction from a mutual contact is best. He emphasises it’s key to start reaching out early — when there’s about 10 months of cash runway left — so that you can use your network to the fullest.

For investors outside your network, cold emails with follow-up can work — but make sure to personalise them by researching the investor’s portfolio and social media so that they stand out. You should:

  • Keep the subject line and body of the email concise
  • Avoid generic greetings
  • Use first names
  • Use easy-to-understand and specific statements and numbers to show growth
  • Use bullet points instead of long paragraphs
  • Attach your pitch deck to the email
  • Send the emails on weekdays and during working hours for maximum exposure.
I think it’s key to communicate to investors that while valuation is vital, it’s not as important as finding the right partnership. Know what you’re looking for in an investor and what they’re looking for too, before you get into bed with one

Once you have a list of potential investors ready, narrow them down and select a few so that you have options to negotiate terms. You can also compare different investors’ term sheets to come to a final decision.

If there are any terms that don’t sit well with the founders or seem unreasonable, they can then negotiate with the investors — and the process also indicates whether the partnership is viable for both parties and if it is a good fit. 

“I think it’s key to communicate to investors that while valuation is vital, it’s not as important as finding the right partnership. Know what you’re looking for in an investor and what they’re looking for too, before you get into bed with one — for me, not giving up founder control is most important, and this will look different for each founder,” says Vyas.

Radha Vyas, cofounder of Flash Pack
Radha Vyas, cofounder of Flash Pack

What questions should you ask investors?

While investors emphasise the importance of due diligence, especially in difficult market conditions, founders tell Sifted that it’s also crucial to do due diligence to find out if a certain VC is a right fit for your startup. They say that there are some key factors to consider in potential partnerships with investors which go beyond the financials — and may even be more critical.

Though the pace of growth may slow in the downturn, it’s likely that wider economic inflation and the growing maturity of the venture capital ecosystem will continue to drive round size up in the coming years

Here are some questions that founders tell Sifted are important to ask potential investors:

  • What percentage of your meetings convert into term sheets?
  • What percentage of your term sheets translate to cheques?
  • What value are you looking to add to our company, other than financial? 
  • How do you expect this investment to help your portfolio?
  • Do you have any concerns about the business, team or product?
  • What is your timeline moving forward?
  • How many follow-up investments have you made?
  • How often do you meet with founders after a funding round?
  • How many female partners do you have? Or as a percentage, how many female-led businesses have you invested in?
  • How many minority founders have you invested in?
  • Do you have any references you could share?

How long after Series A should you raise a Series B?

The next step after a Series A is a Series B round. Founders and investors agree that it’s generally advisable to have enough of a cash buffer to last 18-24 months after a Series A, though this also depends on factors unique to each startup.

Tienhaara and Vyas agree that from personal experience, they would look at having a fairly comfortable financial structure at Series A — a Series B is for when the business has gone past the development stage and is ready to expand its market reach, which can depend on several variables, including general business and economic conditions. 

Series B-stage startups will tend to have a substantial user base, proven product success and be ready to scale. Series B rounds generally sit between $30m-60m and cover the costs of scaling, which can include business development, hiring, marketing and tech development.

Aruni Sunil is a writer at Sifted. She tweets from @aruni_sunil

This piece was updated on Monday, 6th February 2023 at 1pm to correct a misheard quote from Richard Goold.

Aruni Sunil

Aruni Sunil is a writer at Sifted. Follow her on Twitter and LinkedIn