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Sportsmanias, a website that is aiming to become the Internet's top destination for die-hard sports fans, got off to a great start in 2013 when the company secured $1 million in seed funding from Bogota-based Mas Equity Partners. One year later Vicente Fernandez and Aymara Del Aguila, the mother and son team that founded the company, told the Miami Herald that they secured an additional $3.5 million in Series A Financing.

Jorge Mas, of Mas Equity Partners, said his firm was happy to invest another $3 million into the company after witnessing it quadruple its web traffic from 500,000 to over 2 million unique visitors per month. Mas also pointed to the startup's free app for users to get alerts on professional sports free agency, and its head-to-head feeds that create real-time experiences that make fans feel like they're at the actual games. A second unnamed investor provided an additional $500,000 in funding because of the company's promise.

Series A Financing typically comes after a startup has secured the necessary seed funding to get the company off the ground. The term Series A refers to the name of a class of preferred stocks that act as a debt instrument. Once a company shows investors tangible success after receiving seed funding, the Series A round of financing comes next. It's typically used to fund the hiring of new employees, scale the business, and pay for all business operations for the coming year or two.

Seed To Series A Differences

Startups that desire a second round of funding have their work cut-out for them. A 2012 report by venture capital data firm CB Insights found only 40 percent of companies that receive seed funding get any subsequent financing. Further 1,749 startups received seed funding in 2012, up 65 percent from the previous year. But the number of angel and other seed investors far exceeds the number of investors waiting in the wings to provide subsequent financing. This phenomenon leads to many startups being orphaned due to a lack of investors willing to take the plunge.

Regardless of which round of funding you're in, investors typically look for the same things in a company before committing: a strong executive team, a market for the product, and a product or service that addresses a clear market need. But one of the primary differences between seed and Series A Funding is the amount of details a startup will need to provide an investor as it pertains to their projected revenues in the coming years.

General revenue projections, such as indicating how your company will turn seed funding into a small profit or break even by the end of year one, is typically adequate for an angel investor or family members who may not necessarily be looking for a return. Obtaining Series A funds, however, will require detailed sales forecasting models and financial plans that clearly show venture capitalists exactly how they will earn a return on their investment. Venture capitalists want to make money, and will not invest in anything that isn't close to a sure thing.

The structure of the two rounds of funding is also different. Seed funds are typically more flexible as far as utilization. Investors will want (and probably demand) a say in how Series A funds are utilized. Entrepreneurs do not need a vast financial background to receive the first round of funding. But hiring someone more experienced in business finance may be necessary to secure the second round of funding from investors, particularly if the funds are offered in the form of preferred stock with anti-dilution clauses.

The Incubator Route

Firefly LED Lighting, Inc. was founded in 2009 as a small startup to provide a mercury-free alternative to incandescent and fluorescent light bulbs. The company became a member of the Austin Technology Incubator (ATI), a non-profit arm of the University of Texas, a few months later. Mitch Jacobsen, the director of clean energy for the program, said FireFly was the perfect fit because of its stage in growth and innovative ideas. Less than one year after joining ATI, Firefly raised over $300,000 in Series A funding from a network of investors that would have otherwise never known about the company without the help of ATI.

Incubators are organizations that offer member startups supports in several ways, including physical space, coaching, and networking. There are approximately 2,100 incubator programs in the world, with more than 900 in the U.S., according to the National Business Incubation Association. An incubator program should not be confused with an accelerator. The latter is an intensive three to four month business bootcamp which typically offers seed funding in an exchange for a small stake in the company. Incubators, on the other hand, are far less intensive with programs lasting a year or more. Y Combinator is one of the better-known incubator programs, helping companies like Reddit, WePay, and Scribd become what they are today.

There is a great debate on the effectiveness of incubator programs and whether they're better than business school for entrepreneurs to get their companies moving faster. J.J. Colao, founder of public relations firm Haymaker and Forbes contributor, wrote that the real-life business experience and networking incubators provide make them the no-brainer option for startups seeking Series A funds. But Sramana Mitra, founder of incubator One Million by One Million, wrote for Harvard Business Review that an incubator's success and prestige is ultimately based on how many of its member firms receive Series A funds. That means incubators will ignore 99 percent of startups that are deemed “less fundable,” making them somewhat of an exclusive country club for very few entrepreneurs.

Final Words Of Advice

As mentioned previously, most companies will never reach the point of Series A funding either due to a poor business plan or lack of venture capitalists. But once you have a venture capitalist on the hook, due diligence will become the most important two words to the future of your company.

Get to know your investors a bit before partnering with them. TheFunded is a great resource for user-generated reviews on thousands of venture capitalists. Make certain to exhaust any and all alternatives that might be available as well. AngelList is an excellent resource to help you connect with investors who potentially share your values and visions.

There is no entitlement to Series A funds for any company regardless of industry and location. The challenge of securing a second round of funding will equal that of getting your business started to begin with. It's best to just enjoy the ride and embrace the challenge.