Bridging Your Seed to Series A

11.07.17

Blog, Community, News, Thoughts

By Anna Whiteman

Here at Tribeca, we’re in the fortunate position of investing primarily in companies at the Series A level. As an investor, this is an amazing time to get (formally) involved with a company. At the Series A, companies most often have demonstrable product market fit, strong recurring revenue patterns and a fair amount of data on their inputs and outputs that can meaningfully guide strategic direction going forward. As investors, we certainly recognize how much sweat equity goes into hitting these targets on the heels of the Seed round and truly appreciate the hustle of founders who are not only scaling a high-growth business but are running a full fundraising process simultaneously. This track record of hustle is precisely why it can also be so frustrating for founders and VCs alike when we cannot collectively close the loop on committing to a Series A investment. With all that in mind, I’ve sketched out a few tips below that can make it easier for founders to approach the Series A fundraising process so that you can more fundamentally be in the business of running your business:

· Identify Series A investors during your Seed round — I meet founders every day that I’d love to get behind at the Seed level, but we’re just operating in somewhat of a different arena. That said, when we express an interest in maintaining a relationship following the Seed, we mean it! If you come across an investor or a fund that has strict parameters, don’t assume that they don’t love your company, just nurture the relationship and let them be helpful to you when the time comes.

· Create a benchmark deck following the Seed — assuming a Series A investor will have met with you while raising your Seed, help them reconcile the expectations that you set during that round and the realities that follow. If your Seed deck claimed you’d hit $10M in ARR by 2017 and you’re only at $3M by mid-2017, bridge this discrepancy for your investor. By being transparent about the realities, you can better explain why things have gone the way they have, rather than imparting skepticism or doubt on their end.

· Defend or revise your Seed round TAM — a big reason why some investors will hold off on the Seed is because the TAM expectations that founders set are simply too lofty to be believable. That said, if you’ve gotten to your Series A and the market opportunity stands, double down! You’ve probably made meaningful inroads to penetrating your market by your Series A, so reaffirming the opportunity while also showing traction will further validate your ideas.

· Plot out a specific, data-informed use of Series A funds — getting to the Series A means that you’ve been operating for long enough to collect meaningful data. If you’re a consumer business, this could be demographic data, acquisition channels, engagement, etc… Know what your key data points are and spend pointedly to leverage your strengths.

· Ping your Series A targets with monthly updates — if a Series A investor wants to stay in touch after your Seed, help them do this by sending them monthly/quarterly progress reports. It will help them be better equipped to sit across the table for the next fundraising discussion and will instill the notion that you run a tight ship.

· Reference check your Series A targets — I cannot overemphasize this point enough. Being a founder in the middle of a fundraise can feel like all eyes are on you. While that’s partially true, you should still feel empowered to turn the tables and seek information on your investors as much as they do you. Talk to founders of their current/former portfolio companies, understand what type of partner they are, ensure that you’re not entrusting your hard-earned business with ill-suited capital.

· Create and maintain a simple data room — a data room will inordinately simplify your life while running a Series A process. At the very least, this should include information like a current cap table, updated operating model, sales and marketing materials, legal/regulatory contracts, and high-level systems/processes information. It will help you keep your information current, will standardize the materials that you send across to multiple parties, will give structure to the various work streams housed inside your company, and will be something that you’ll inevitably have to build as you continue to scale, so best to instill the discipline early. It is also just another indication of running a tight ship, which investors are always happy to see.

Equityzen has also published a helpful and somewhat more metric/KPI-driven guide to Series A. Open to any thoughts, suggestions, or questions that others have on best practices here!

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