Series A Lingo

Familiarizing yourself with words used by founders and investors about Series A-stage startups (soon proper companies) will help you chat more comfortably with people in the space. This doc is sourced from Embroker.

Series A is the first big funding round for startups that have a product and evidence of traction. The Series A round is typically funded by VCs who seek to obtain equity.

The funds raised are used to expand and optimize the business’s client base and products. By this stage, it’s important to have ideas for a business model that can generate long-term profit.

Seed A rounds raise between $2 million to $15 million depending on the valuation.

1. Micro Venture Capital

Micro VCs are smaller venture firms that invest in startups during the early seed stage. They typically invest between $25,000 and $500,000, less than traditional VC.

2. Liquidation

The process of bringing a business to an end through the selling of a company’s assets and inventory.

3. Liquidation Preferences

A liquidation preference is a contract clause that gives investors the right to get their money back first — ahead of other kinds of stockholders — in the event of a liquidation.

Liquidation preferences are expressed as a multiple of the initial investment — for example, 1x liquidation preference means they get their full amount back.

4. Preferred Stock

Preferred stock, also known as preferred shares, does not come with voting rights for shareholders, but it does give them special privileges to minimize their risk in case the value of their investment goes down.

For example, investors might get liquidation preferences or rights to redeem shares from the market after a period of time.

5. Common Stock

This is the most common type of stock that people invest in. Unlike preferred stock, common stock represents ownership and gives stockholders voting rights proportional to the number of shares owned.

Employees and founders usually receive common stock.

6. Forecast

Forecasts in businesses are similar to that in weather — they’re projections of activity or performance for a specific period of time in the future. Forecasts can be applied to revenue, sales, or growth. Forecasts are more of an art than a science, but they take into account operating costs, cost of sales, and profit margins.

Forecasts help you manage your cash flow and are referenced in fundraising rounds to attract investors.

7. Market Penetration

Market penetration has two definitions depending on the context. The market penetration rate refers to a measure of the volume of products sold relative to the total estimated target market, expressed as a percentage.

A market penetration strategy is the process of increasing a product’s market share by tapping into existing products in existing markets.

8. Venture Debt

This is a type of debt financing used by early- and growth-stage venture capital-backed startups. Venture debt is generally structured as three- to four-year term loans.

Advantages of venture debt include preventing dilution, extending runway, and reducing operating costs.

9. Competitive Advantage

A competitive advantage is an attribute that allows your company to outperform others. Factors contributing to competitive advantage include price, branding, product quality, distribution, and customer service.

To identify your competitive advantage, you have to be familiar with your target market as well as your competitors.

10. Run Rate

Run rate refers to the projected financial performance of a company based on the current financial performance and the assumption that current conditions will remain constant.

11. Pitch Deck

Startups need to prepare a “pitch deck,” a 10- to 20-slide presentation, to showcase their company to prospective investors. The deck gives an overview of your product, business model, and team. A pitch deck should tell a compelling and visually interesting story to appeal to investors.

12. Due Diligence

Due diligence is an audit or review that investors conduct to analyze a business’s financial records and intellectual property prior to making an investment or acquisition.

Fly Buy appealed to a panel of VCs with their pitch deck and offers of preferred shares, and raised a post-money valuation of $10 million. After completing the due diligence process, they secured $7,000,000 in capital. At their current run rate with steadily increasing sales, the founders think that they have a shot at another series round.