June 22, 2011
The second stage of startup investments is typically known as a Series A financing. Once a company has moved passed seeking money from friends and family, or the Seed Round, their financing tends to come from more traditional sources. This is the round that some Venture Firms, Angel Networks or individual Angel Investors begin to get involved.
From an investment stand point, the companies you are looking into will typically be pre-revenue. What you’re looking for in these companies is evolving iterations of their products/services and an understanding of who their customer is and the costs associated with getting their customers.
As mentioned this stage is generally pre-revenue companies, so you aren’t looking for the company to be experiencing hockey stick type growth or business acquisition. What you’re looking for in these types of companies is whether or not they have proven their business model is viable. At this stage the valuation will be greater than it was during the Seed Round, but should still be attractive enough that you are able to take a portion of the company for a good value.
What you should look out for:
1. How did Management use the proceeds of the seed round? Was it as expected? Did they keep accurate records of their expenditures and projections?
2. Was has Management learned since their seed round? What adjustments have they made or do they plan on making based on the knowledge and experience they have gained?
3. Who else is of interest or being financed in the space their startup is in? What are their valuations and what have they currently raised?