By the time your business may be ready for Series A, to raise £2m to £5m, you’ll need to demonstrate serious traction. Expect investors to typically want to know revenue upfront, with a ballpark threshold for Series A being £1m of annualised revenue. If your business is intellectual property rich you may have a patent or significant technological development with a clear market opportunity, which can offset the immediate focus on revenue.
Consider these Series A finance options:
- Venture capital (VC) firm: while many founders view VCs as homogenous, there’re many different ‘styles’ of VC. Some may be sector focused, others geographically operating. They also differ in terms of the growth they expect from businesses. At Buzzacott, we often refer to two broad categories of VCs:
- ‘Venture’ or ‘US style’ VCs: they’re looking for businesses who are capable of being unicorns, so they’re often more focused on the market opportunity needing multi-billion market sizes. Venture VCs will often encourage businesses to grow quickly with less focus on profits and more focus on growth rate, which increases both the chance of creating a unicorn but also the chance of your business failing.
- 'Growth’ investors: these’re more prevalent in the UK. If your businesses has a niche market opportunity with a strong plan to get there, or you have grown successfully and sustainably, then growth investors are likely to take you more seriously. It may improve your chances of raising finance if you can demonstrate that your business is breaking even or close to that. Growth investors’ strategy is to ensure they have very few failures, with most businesses in the portfolio providing a return, rather than those running full steam to attempt to become a unicorn.
While you may consider attracting both types of investors, you can improve your chances by predominantly appealing to one group, depending on their shareholders’ goals and risk appetite.