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A Startup’s Guide to Navigating Venture Capital

There comes a day in an entrepreneurs life when they begin to consider venture capital funding. Venture capital (or VC) funding has helped many startups reach booming levels due to a significant increase in funding. This money allows startups to expand marketing efforts and in turn further increase their reach.

Sometimes fundraising from family, friends and angel investors dries up. This encourages small business owners to explore venture capital options: titled Series A, B, and C. Most businesses start at Series A and sometimes work their way to Series C. Read on for the basics of each venture capital series.

Series A

Series A is generally most entrepreneurs first step to get to the major leagues of venture capital. And while early stage businesses often raise tens of thousands of dollars in seed funding, VCs usually see to invest millions of dollars—like we said, the major leagues.

So, when is a startup ready to start raising Series A? Unfortunately there aren’t any true indicators that a business is ready for venture capital funding. However, some investors review annual recurring revenue to decide if a company is ready for Series A. Some even suggest that passing the the $1 million dollar mark is a general milestone and good indicator that your business is read.

Series B

Most people consider Series B after raising Series A funding because entrepreneurs simply need more capital to reach their business goals. In addition to reviewing an annual recurring revenue, Series B investors will put emphasis on growth rates and historical performance—factors that aren’t typically relevant in a company’s earliest stages.

In 2018, the average Series B funding was greater than $24 million dollars. This reveals why many investors expect Series B-funded companies to grow three times following the investment.

Series C

If you reach Series C funding, it’s likely you have experience negotiating and working with venture capitalist firms. Series C funding is known as the highest level of investment and introduces influential investors such as private equity and hedge funds. This explains why the average Series C funding is $50 million or more. Let that sink in.

Since you’re dealing with indigestible amounts of money, there is typically a lead investor responsible for managing negotiation meetings. Furthermore, topics like due diligence and pro-rata rights are discussed at this stage of funding.

To help startups navigate the venture capital ecosystem, Embroker put together this guide to raising venture capital that will help prepare you for your first VC meeting, know your value and advocate for your worth. From pitch deck best practices to decoding a Series A term sheet,vthis is your go-to guide for joining the major leagues.

pitch deck best practices

Please include attribution to Embroker.com with this graphic.

Series A term sheet guideCourtesy of Embroker.com

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