Series A Funding in the Current Climate – Not all Doom and Gloom?

It is generally accepted that Series A funding is crucial to the development and scale up of early stage business.  Funding generally was very competitive prior to lock down, but with the obvious economic pressures brought about by Covid-19, what is the view moving forward and how does a business seeking such funding best prepare for investment discussion?

What is Series A funding?

Series A funding is often the first in a stage of equity backed capital raises, whereby the investor, subscribes for shares in a target business.  In many cases, it is followed by further investment rounds where further equity is subscribed for additional cash to fund growth and development.

The Impact of Covid-19

Without a doubt the global pandemic and lock down, resulted in a slow-down of investment as investors looked to protect themselves as much as possible from the consequences of a global shut down, however since June as the world began to adjust, there have been positive signs with it being reported that UK venture capital investors have around £8.5bn of cash awaiting investment alone.

How to attract investment?

Venture Capital must continue to invest to generate return, however, competition for funding is fierce.  Whilst early stage funding is often seen as an investment in the entrepreneur rather than that particular business and when coupled with the availability of advantageous tax reliefs in the form of EIS / SEIS for example, risk of investment is somewhat cushioned, those seeking Series funding needs a different approach in preparation.

Investors will expect to see a sellable product with evidence of revenue generation.  They will often expect to see the business scaled to a size where skilled talent is being retained and employed in the business.

Investors will want to understand the value of the investment round and will expect to see detailed financial projection.

The due diligence exercise is likely to be significantly more detailed in terms of legal, financial and operational.  Making sure that the business owns all intellectual property, licences, protected by commercial confidentiality clauses and ensuring skilled employees and founders are the subject of safeguarding provisions in service and employment contracts is vital.