Securing Series A funding for your startup can be a daunting task, especially in a challenging fundraising market. As a founder, it’s crucial to start well in advance to optimize your odds of success. Here are some essential guidelines to consider when embarking on your Series A fundraising journey.
Give yourself ample time to prepare
Begin at least six months ahead of your desired fundraising timeline. This timeframe will allow you to meticulously strategize and execute your fundraising plan, while increasing your chances of securing the necessary capital. Remember, fundraising is a complex process that takes time, so give yourself the runway you need.
Know your milestones
Metrics hold significant weight in the eyes of investors, especially for a Series A. Gone are the days when momentum or buzz alone could secure funding. Investors want to see tangible evidence of your startup’s growth and potential once you are past the seed stage. Below are some of the most popular metrics that investors want to see in a Series A:
- SaaS: $1M+ ARR
- Marketplace/GMV: $1M *net* run-rate
- 15% MoM growth
- SaaS: Negative churn rate
- E-comm/DTC $3M+ run-rate
- DAU/MAU above 50%
- 15% MoM growth
- Really impressive team
- Technical breakthrough
- Meaningful tech milestones achieved
There are plenty of other metrics you can include when fundraising, but do not let them muddy your pitch. Showcase the metrics that describe your business best.
Track metrics year-round, and iterate until they improve
Once you’ve launched a raise, your metrics are essentially set in stone. Too many founders ignore metrics until fundraising time, and are then stuck trying to “massage the numbers” or revamp their story at the 11th hour. Investors will always sniff out a creative calculation, so take the honest approach and try to genuinely improve the business functions that your metrics reflect.
To do this, you must track your metrics year round and leave plenty of time to tinker with strategy prior to a raise. For example: if you know your CAC looks a bit weak 12-months prior to a fundraise, you have time to run multiple experiments with different distribution channels and marketing strategies prior to your raise. If you wait until a month before your raise to calculate CAC, you’ll be forced to report a bad number in your pitch deck and sell investors on your (untested) ideas for improvement. Hewlett-Packard famously said “what gets measured gets fixed”, so measure early and earnestly.
Connect with VCs and cultivate relationships well before your pitch meetings
Relationships are a crucial aspect of the fundraising process, so start building them well before your pitch meetings. Seek warm introductions from mutual connections who can vouch for your credibility and vision. Leverage the power of social media, particularly Twitter, to expand your network and build credibility. Engage in thoughtful conversations, share industry insights, and establish yourself as an authority in your domain. These efforts will help you build organic, genuine relationships with investors, which is tough to do in a pitch setting.
Keep in mind that VCs prefer to measure your company on a line, not a dot. If you talk to an investor multiple times over ~6-12 months, you have a much greater opportunity to prove yourself. Tell them your near-term goals, then follow-up to confirm you hit those goals. Discuss a challenge you’re facing, then follow-up to explain how you beat the challenge. Give yourself plenty of time to show VCs that you can execute; otherwise they may not take your word for it come pitch time.
Create a sense of scarcity and urgency
This can be achieved by keeping a tight timeline for the fundraising process. By establishing clear deadlines and communicating them to potential investors, you create a sense of exclusivity and urgency. Investors are more likely to act decisively when they know there is limited time to secure a spot in your funding round. Start by meeting with as many firms as possible in the first two weeks of your raise, then narrow it down to top choices and try to secure term sheets quickly. Setting a strict deadline shows firms that you are confident the round will close with or without their participation.
Finally, don’t wait until you desperately need the cash to start the fundraising process. Continuously evaluate your metrics and projections, and begin looking at a raise when you hit the milestones noted above (even if you still have ample runway). Waiting until the last minute can lead to rushed decisions, unfavorable terms, and added stress; it also invites macroeconomic risk that is fully out of your control. By staying on top of your financial situation, you can navigate the fundraising process with confidence and negotiate from a position of strength.
In conclusion, raising Series A funding requires careful planning, relationship building, and a deep understanding of your metrics. Start preparing well in advance, at least six months ahead, to optimize your chances of success. Know your target milestones and track your metrics year-round so you know whether you’re on track to raise successfully (and have time to iterate on whatever is not working). Finally, once you do launch a fundraising process, act with urgency and insist that investors do the same.