The “Series A” Dilemma

The line is growing of entrepreneurial companies seeking Series A funding in the range of $1-2 million.  In the course of my three decades of representing tech companies, I can’t remember so many entrepreneurs looking for Series A money at the same time.

This is a good news/bad news story.  The good news is there are dozens of entrepreneurs starting companies and bootstrapping them with their own money and cash from friends and family.  A significant number of these new entrepreneurs are first-timers — and many of them are bouncing back from a recent lay-off or consulting role. 

The bad news is the dearth of venture financing, especially in the Southeast.  Angel funding is also minimal, and the $1 million Series A threshold is too high for most angels.  The days of a venture fund seeding a first-time entrepreneur’s company with $1 million to see if the business model works are over. 

Viable financing alternatives do exist.  First, venture funds in other sections of the country (Northern Virginia, Boston and Silicon Valley) target Series A investments.  Also, there are several investment advisors with high net worth clients interested in investments in $1-2 million range.

These two groups of prospective investors are often looking for companies in hot markets or those with an experienced management team.  For example, hot markets currently include telemedicine, fraud detection and prevention, business intelligence/analytics focused on growing markets, and IT and related services in the real estate foreclosure and government markets.

There is another problem for Southeastern tech companies seeking Series A financing from out-of-state venture funds.  Often those funds require a local presence in the form of a respected angel investor or venture fund to serve as the eyes and ears of the Series A investor.  So, if the Southeastern company can’t locate such an investor/mentor, then there may be challenges in obtaining the interest of California, New England or Northern Virginia venture investors.

Let’s keep the entrepreneurial ideas and new companies flowing — and as the economy improves, so will the number of Series A investors. 

John C. Yates
Partner
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, NE
Atlanta, Georgia 30326
Direct: 404.504.5444
Fax: 404.365.9532
jyates@mmmlaw.com
LinkedIn http://www.linkedin.com/in/johncyates
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This information is presented for educational purposes and is not intended to constitute legal advice; see disclaimer at http://www.www.mmmtechlaw.com/privacy-policy-and-disclaimer/. Contact John Yates for more information at jyates@mmmlaw.com; 404-504-5444.