Most successful startups actively seek external funding at various stages of their development and growth. Outside investment processes are commonly broken down into specific rounds of funding. These rounds include Seed, Series A, Series B, and Series C. Each round allows for investors to obtain equity or partial ownership of the company in exchange for capital.

A fundamental understanding of each investment round is critical for both company owners and those interested in evaluating entrepreneurial prospects. Each round of funding aims to bring ideas to life, empower entrepreneurs to drive growth, and ultimately sustain a successful business that generates substantial long term revenue.

Let’s take a look at each unique investment round...

The first official investment round that a business partakes in is called ‘Seed funding”. This initial financial support is meant to assist in the early growth of a business venture. The goal is to fuel revenue generation and strategic initiatives during the infant stages of operations. Often, this funding is allocated by the new business for product development or initial expenses like staffing and market research.

The types of investors that assist with Seed funding vary. Sometimes these investors are the founders themselves or their friends and family. Beyond personal relationships, VC firms, incubators, and Angel investors are common contributors in the Seed round of funding. Angel investors are arguably the most common early investors, and they require equity in the company in exchange for their investment. Being that many of these initial investments contain some degree of risk, equity requests have become common.

The specific amount raised during the Seed round can vary from $7,000 to $2.5 million, as it depends on the startup being considered. While many startups eventually move on to other rounds of funding, some decide that Seed investment is all that they need and never engage in further rounds. On average, companies in the Seed round are valued between $3 - $6 million.

Series A funding is often sought by businesses that have already proven their ability and demonstrated that they are successful to some degree. This demonstration of success can be in the existence of a strong user base, or consistent revenue over an extended amount of time. The objective of Series A funding is to truly scale products, users, and operations.

One of the primary differences between Seed round and Series A is the existence of a solid business model that will lead to sustainable success and an ability to monetize. While many startups successfully raise Seed money, they struggle to monetize. This round of investment has a significant range, as it is not uncommon for Series A rounds to obtain anywhere from $3 - $20 million. If the business in question is within the tech industry or is considered a ‘unicorn’, then Series A funding can average $15 million.

Investors are looking for much more from businesses at this stage than in the Seed round. While the Seed round is focused on powerful ideas, Series A companies must possess a strategy that positions a strong idea for success. These investors are often working at VC firms, and the process is much more nuanced. VC firms are looking for companies that have already received a single investor at this stage, known as an “anchor”. This first investor helps attract the attention of other competitive investors.

An emerging trend within Series A funding rounds is the presence of equity crowdfunding. This provides an alternative for businesses that are unable to create buzz or interest within the VC space. This is a common issue, as less than 50% of businesses that received Seed funding go on to secure Series A funding. Businesses in the midst of Series A funding can be valued at around $25 million.

When a business moves into the Series B round of funding, they are well past the development stage. At this point in operations, investment is meant to expand the market potential and reach of a business, as the user base is already established. In order to obtain Series B funding, a company must demonstrate to investors that it is ready to scale sustainably and successfully.

In order to achieve this scale, businesses often bring in additional talent with a track record for business development. Often these professionals are in sales, tech, or advertising. The cost of acquiring this level of talent is a hefty one, which is why the average Series B raise is $33 million. At this point, the company is established and its valuation is reflective of its success to date (between $30-$60 million).

The investors in this round possess the same professional profile as those in Series A. Often an anchor investor at a VC firm gets the ball rolling and inspires others to invest. The primary difference here is the presence of a few select VC firms that specialize in funding later-stage companies.

Every business that goes through Series C funding is already a success. Because of this, the funds raised in this round usually go towards product development or the acquisition of new companies. Series C investors are looking to more than double the amount that they inject. The idea is to scale as quickly and smoothly as possible, as the business is already successful to some degree.

Being that rapid scale is often the goal here, acquisition of another company is a common use of funds. Since the primary company is successful, it becomes much more conceivable that the same team would be able to acquire a similar or related company and integrate it. This is especially effective if the company being acquired is a competitor with a slightly different offering or market. This allows the Series C company to immediately expand.

Another common approach is to broaden the target market. If a company is a huge success in America, Series C can help expand operations overseas where a similar approach can be used to scale quickly.

Due to the demonstrated success of companies that make it to Series C, the investment is viewed as much less risky. A less risky investment increases the presence of potential investors. This is why investment banks, hedge funds, and private equity firms all appear during this round. These investors are looking to secure their own positioning as leaders, which is why they are inclined to invest in a company that is already doing very well.

Series C businesses often secure hundreds of millions of dollars in funding, as they are often valued at around $120 million. This valuation is common of companies that are looking towards an IPO, and Series C only increases this valuation. The primary difference in valuation at this stage is the fact that it is based on real data and not expectations for success.

Disclaimer:
Wherever any material is quoted as sourced from the published text with publishing rights vested in an individual, it is stated that it is a pure quotation and no intention to claim it as our own.

Running a design or development agency requires an ability to tackle a range of operational issues. Many of these issues stem from client demands, which can range from complex needs to vague ideas that must be deciphered. All client demands vary in certain respects, but each must be considered and navigated in order to achieve success. While your agency brings a lot of experience to the table, development is always challenging and some issues are consistent across the industry.

Avion Technology specializes in the white-labeling of programming for digital agencies, providing a hybrid approach to offshoring that keeps project management in Chicago while delegating certain elements to trusted offshore partners. This approach simplifies web development for all of our partners by solving these 3 common issues facing most agencies today.

1. Staffing In-House Programmers

   One of the logical solutions to clients regularly requesting complex website development is the hiring of an in-house programmer. At first, this decision makes sense as you consistently need a programmer and you want one that you trust as a dedicated team member.

   The clear benefit being that you will now have a developer that is fully onboarded as a team member, and working closely with every other relevant employee on staff. The issue that agencies face when making this hire is that one person cannot cover the range of specialties and skills required to program. The evolution of technology results in new techniques, platforms, and preferences that must be accounted for.

   An in-house developer usually does not have the bandwidth to keep up with developing trends, as their focus will need to be on client projects and deliverables. It becomes impractical for agencies to keep up with new software, equipment, and skills that in-house developers must remain cognizant of as the industry evolves. This is why staffing programmers remains a top challenge for most agencies.

2. Outsourcing Decisions

   As a response to staffing challenges, many agencies decide to outsource some elements of development. This is a very effective solution, however, too many agencies struggle with the decision of who and where to outsource to. The choice commonly exists between freelancers, partner agencies, and overseas companies. Each choice has its pros and cons, but hybrid solutions exist that offer the best of all options.

   Coordinating freelancers can be a nightmare. These external professionals must be properly managed so that deadlines are adhered to, ideas are protected, and communication is consistent. There are so many variables here, and changes in availability, so some agencies try to avoid this path. Even more of a concern is when a number of different freelancers get involved and a project becomes unwieldy with inconsistencies and varying code. Outsourcing overseas is an option that many agencies take when looking to scale quickly, as costs can be cut. There are concerns related to language, culture, and work schedule, which some agencies struggle to manage. The complexity of any given project can impact its success and the hurdles that exist.

   Agencies like Avion Technology bridge the gap between outsourcing overseas and working with a partner firm or freelancer. We have our own team here in Chicago that handles project management and collaboration with our overseas team and our clients. This eliminates concerns related to overseas outsourcing by providing a local team that manages projects and is available for communication with clients.

3. Scaling Your Agency

   Scaling any business is difficult, and creative agencies are notoriously challenging to scale. When growth occurs, new people must be hired, services must remain consistent, and business development becomes more complex and financially significant. The ability to scale requires an ability to manage growth so that all processes can be monitored and optimized while maintaining the company culture that helped you achieve success in the first place.

   In some cases, an agency was constructed around the founder’s expertise and brand. This sets the groundwork for client expectations, which can be difficult to move beyond. As agencies scale, growth must occur at a deeper level so that the founder isn’t expected to handle every major client interaction. Once scale is achieved, the founder will not be able to have his or her hands in every pot, which makes them a bottleneck should that expectation continue to exist.

   Avion Technology is a great resource for agencies that are looking to scale sustainably. We help manage projects, providing a range of pure backend developers that help remove bottlenecks for our clients. We work with our team in Chicago and our team overseas to ensure that clients receive the value associated with outsourcing and the trust associated with a local partner in your city.

Disclaimer:
Wherever any material is quoted as sourced from the published text with publishing rights vested in an individual, it is stated that it is a pure quotation and no intention to claim it as our own.

Most digital agencies have relatively low-profit margins, and this is true for even some of the world’s top agencies. A survey conducted by Hubspot found that a majority of agencies were not sure of their margins, or reported margins between 11-20%. Anything in the single digits is unsustainable, and anything above 20% is superb. Considering this data, the question for many agencies becomes how do you increase your agency’s margins?

Luckily, there are proven best-practices that are effective strategies when it comes to increasing margins. While every agency is unique and focused on different primary services or goals, the following 4 tips will go a long way towards your goal of increased margins.

1. Outsource Production

   Operating an agency requires a lot of overhead. Whether this comes in the form of new hires, rent, office supplies, taxes, or team events, there is a myriad of costs associated with successful operations. An immediate alternative exists in the form of outsourced production. Your agency should be considering the outsourcing of deliverables, which can be done for a fixed price.

   If you offer your clients elements of production that are not the core of your business, an argument can be made that this in-house work is not worth your time. If these elements are outsourced and properly managed by your existing staff, you can significantly improve margins. We recommend that you find a trusted vendor and outsource to them in order to reduce your overhead costs.

2. Upsells & Cross-sells

   The conversion of a prospect to a client is an extremely challenging process. However, as soon as this transformation occurs, there is a massive opportunity to upsell and cross-sell. This client is already convinced of the value that you will provide, so offering additional value at a fair cost becomes much easier.

   There are so many businesses that have tapped into the power of upselling, as upsells are 68% more affordable than acquiring a new customer. This is because of the very little work required. One approach is to upsell a customer on more of the same thing that they are already purchasing. Upsells can be the development of additional pages on a site or layering in related marketing initiatives. There are also opportunities to offer services that you actually outsource. This makes it possible to test offerings without the need to hire more employees or set up new processes.

   Ultimately you want to provide an add-on that is simple for you to deliver but increases the value add for your customer.

3. Focus on Repeat Customers

   Agencies that focus on strengthening their relationship with existing clients see higher profit than those that primarily focus on one-off projects. Pitching new clients is resource-intensive and time-consuming. When you build trust with current clients and develop long-term client relationships are able to close deals twice as often when compared to pitching new potential clients.

   Agencies that generate 70% of their annual revenue from existing clients are increasing margins by cutting costs of pitching and onboarding new clients. This ability to reduce churn and maintain successful relationships with clients also increases opportunities for referrals, which are often easier sells than cold pitches.

4. Productize Your Offerings

   Many agencies fall into the habit of customizing each product, which limits the ability to scale. By productizing your services, your agency makes its offerings highly defined and thus scalable.

   This approach is a challenging one, as every agency’s individual client is unique, however, it is possible to establish a system that helps you reduce costs and sell more. As an example, if you are a web design agency, you can package your offerings by the number of pages or if you manage social media marketing you can sell packages based on the number of posts.

   Too many agencies this might sound obvious, however far too many creatives fall into the trap of just saying yes in order to close deals. This strategy might work early on, but as workload increases and your client base builds, it becomes severely limiting. By packaging and productizing your offerings you eradicate wasted margins that originate from over customization.

Disclaimer:
Wherever any material is quoted as sourced from the published text with publishing rights vested in an individual, it is stated that it is a pure quotation and no intention to claim it as our own.

With the right approach and the adoption of these four strategies, your agency can begin to carve a path towards higher margins. Avion Technology helps digital agencies with white label programming. Our solutions can help your agency increase margins through a hybrid approach to programming and development that utilizes both Chicago-based and offshore talent.