Part 1 in From Seed to Series A: Being “Series A Ready”
“When you’ve built a product, launched it, found product market fit, figured out the business model and now need to build a real company around that” A VC
“We like to understand whether the product resonates with the market it’s trying to address” Another VC
“When a company has product, market, fit. We’re looking for some validation from the market that the product or service is resonating beyond friends and and family who tried it initially.” Another VC
Ask any VC this question and they’ll likely refer to one of either “team, technology, traction” or “product, market, fit”. The truth is, it’s a combination of all the above.
A seed round is raised on the back of team, technology/product and market. You pitched an idea that addresses a very large market and built an MVP to show how it might work in practice. Hopefully, you already have (at least) a 12 month roadmap and hiring plan for building and scaling that product. Successfully executing against this is, of course, critical for the next fundraise but it’s not sufficient. With the the stages of investment becoming clearly delineated between ‘pre-seed’, ‘seed’ and ‘series A’, Series A investors want to see a set of KPIs that indicate you’ve built a valuable product that scales. In other words prove “product, market, fit”.
It’s here that most early stage founders get lost. Most assume that it’s sufficient when they’ve hit a certain revenue target or growth metric. But the best founders (like the best investors) will never consider one KPI in isolation. They understand that success lies in building a scalable product, which means knowing how to acquire users/customers in a repeatable and profitable way. This means learning the best channels by which to acquire them, how much it costs, knowing how those users/customers shared/spoke of the product, how much their engagement with the product changed over time and much more.
At LocalGlobe, after collectively investing in and advising more than 150 seed founders over 15+ years, we’ve designed a process that intends to get founders in the mindset of Series A investor as early as possible. It’s predicated on the basis that VCs are very good at pattern recognition. While the patterns may change through cycles and over time, for every sector and/or business model, there are “best-in-class” metrics against which an investor will benchmark yours (here’s a good piece to see how this works in practice) and they’ll want to see something in your KPIs that suggests that you’re building something “exceptional”. We work with founders to help them visualise and articulate what “Series A ready” could mean for their company, giving them the tools and methods to critique their product, growth and distribution in the same way an investor would. Having this framework then helps set the key milestones on the journey. It’s not expected to be a static document, but being able to articulate these milestones to investors helps calibrate early on whether they share the same view of “exceptional” as you.
But don’t just take our word for it! Here’s my interview with Fred Destin, partner at Accel Partners, asking his advice to founders on raising a Series A.
