7 Tips to Negotiating your SaaS Startup Car Onto The Series A Highway
When my business partner, Greg, and I launched Fusebill, a crystal ball would have served us well, especially as we waded into the financing waters.
We started Fusebill after the company we worked for was acquired. Both long-term employees, we watched Protus go from a handful of employees to over 400 at the time of its sale. In the decade-plus that we worked there, we watched the company spread its entrepreneurial wings to an impressive $80M annualized run rate.
We were inspired by that 10+ year journey and saw an opportunity to sow some entrepreneurial oats in the subscription billing management niche.
After being at it for almost a year, Fusebill initially went through the seed funding process, and then in 2016, we started on the Series A funding path for our recurring billing management platform. Even though we were prepared for the process and Fusebill had already proven its success, the transition from seed to Series A was a tremendous learning experience from an organizational standpoint to the underlying dynamics of the entire process.
1. Getting to know investor groups: What stage do they focus on?
Before you start the Series A funding process, get to know different investor groups well before you plan on asking them for money.
Get strong referrals from your network, other entrepreneurs, your lawyer and your earlier investors. This was something that was very helpful for us when we sat back and figured out who we could likely partner with.
Most venture funds focus on different stages of companies as well. So if you are going out for a Series A round, you really want to be talking to earlier stage venture investors and not later stage investors. This might seem obvious but to rookie fundraisers, it’s important to ensure you are maximizing your time by spending it with the right people.
You will be tremendously busy and you do not want to be spending time talking to people who invest in companies at a late stage during this process, nor will you want to waste their time… especially if you might be reaching out to them during a later funding stage for your business.
2. Develop a strong team by utilizing their strengths
A strong team is going to be critical to show to investors.
When Protus was sold, 300+ employees were left wondering what they were going to do next. We had access to some tremendously talented people that had a front row seat in observing a company grow, scale and exit.
We knew their expertise. When we needed a developer, we knocked on a developer’s door. When we needed a product architect, we knew where to go.
Even from the beginnings, we were a team of 10 experts working on the idea and concept behind Fusebill. When you work 3, 5, or even 10 years with someone, you simply cannot replace the trust factor that is nurtured in that time.
This was key when we were starting on our seed funding path, because people knew we had that Protus synergy and proven teamwork. This helped underscore our value to investors at this stage.
3. Strategize and plan — don’t hope
Having a well thought out timeline and strategy beforehand is key to running a successful financing process. Any campaign that I have been through from a financing perspective is really 6+ months from the day you leave the building to the day that capital gets into your bank account.
As it is said, “Hope is not a strategy.” You need to set clear milestones with respect to what the capital is going to do for you and how far it will take you. If you plan to raise X amount of money, how far will that take you? When you hit each milestone, what’s your plan afterward? What is your next step going to be? Are you going to raise more money? Are you going to build a bigger company?
You need to be prepared for every step of the journey, and be able to convey the entire journey to potential investors.
4. ‘Planning’ to go off plan — an “overnight success” takes 10+ years to build
At the same time, expect the unexpected. What happens when you go off plan? It’s likely going to happen. Shopify, for example, has been a wildly successful company, but it took nearly 7 years to get to series B funding. Are you prepared for 10+ years of grinding?
This leads to another important point: Get to know potential investors before you commit to working with them. Despite the small window of time you have in this stage, you better plan on taking a road trip to get to know each investor as well as you can. True face time (as opposed to the FaceTime app) is the best way to accomplish this.
At the end of the day, as an entrepreneur, you are building the car, but the VCs are putting the gas in the tank and jumping into the back for the ride. It’s going to be a long journey working with them, so you better find out ahead of time how well you will likely work together.
Another way to do this is to learn as much as you can about their previous investments. There is nothing wrong with asking for references and speaking with founders of other companies these investors partnered with. After all, you’re essentially opening up the chest cavity of your business to them to prove your worthiness, it is best to spend some time listening to what others have to say about them.
5. Select VCs carefully — you’ll be running a marathon with them, not a sprint
When you choose your venture partners, you really want to be able to select people who fit well with you, knowing that you’re going to be working with them for the next 8 to 10 years or more. Is this someone that you can work with for that amount of time?
Don’t settle. You don’t want to be in a scenario that you’ve picked someone at the last minute because you were desperate, this is a recipe for disaster.
Ask yourself these questions when meeting potential investors. If your business plan expects to be at a $50M run rate in the next three years, what happens when you’re off plan? Or if the market changes? How will that VC react? Taking the time to learn a lot more about your potential VCs will tell you how they will respond if you go off plan, because let’s face it, it’s likely to happen.
6. It takes a village of awesome people to build a successful company
After I left Protus, I looked for something to occupy my time. I ended up spending a lot of time at the gym — in step, as it were, with Greg. As we talked about what we were going to do next, and then conversations swayed towards getting the old band back together. As these discussions started to move toward real actions, we started to look for initial team members and establishing a regular meeting place.
We were fortunate that the Ottawa library offered reasonable rates for us to meet in the beginning. Our small team would meet there for a few hours a week, and then we would work from home the rest of the time, using Slack or Skype to chat with each other in the meantime.
From the beginning, Fusebill has always had a family-first mentality. But with a young family, I quickly learned that working from home was not the most productive environment for me. My kids were 8 months old and two years old at the time and it was difficult to work productively at home.
We started looking for ‘startup friendly office space.’ We were fortunate enough to find a local entrepreneur who had some offices in his building that were not being used. Working with him gave us access to a boardroom, no lease, low rent and the ability to leave anytime.
Over time, that grew to about 10 of his offices and we needed to look for something to fill our growing team’s needs. Today, we are in about 7,000 square feet of that same gentleman’s space. In the early days, though, we were especially appreciative of people like this helping us out.
Series A Funding takes time, as does building any successful business. It also takes patience, and it takes a village of people that understand success is not going to travel in a straight line.
Interestingly, as you are building your network with investors and other entrepreneurs, you’ll be surprised at how many people out there are willing to help you.
7. Term sheets yield extensive legal documents
So you have a term sheet… yay!!! Now the real work starts. While making the jump to Series A Funding, be prepared for a lot of legalese. One thing that surprised me was the tremendous amount of legal work we encountered after signing our term sheet.
Typically, you go meet with investors and pitch what you’re doing. If they’re interested, they’ll put together a ‘term sheet’ which is the amount of capital they want to put in, the valuation of the business, etc.
Once you decide on what term sheet you want to pick (assuming you have more than one), you then transition into the legal aspect. This step can take 30 to 90+ days and you are looking at documents that are hundreds and hundreds of pages of legalese.
As a first-time SaaS entrepreneur, having the right legal partner on my side was critical. They spent the time to help us understand the documents, what they mean and their impact. It takes a lot of time to get comfortable with this stuff.
The bottom line is, any level of funding is going to take time. You need to have thick skin as there will be many “no’s” before you get a “yes.” Heck, even Marc Benioff couldn’t get VCs to say yes when he started building Salesforce.com
The SBA estimates that about one-third of all new businesses fail in the first 2 years, and at the fifth year, only half are still alive. For your company to make it this far and looking at Series A funding, you have already succeeded. Now it’s time to strategize for further success and nail your Series A funding!
