I have been angel investing since 2012 while at and after spending eight years at Spotify. Since then, I have backed 45+ companies and I’m regularly asked one particular question:
“How do I raise a Series A and can you have a look at my pitch deck?”
Several of my angel investments have gone on to raise Series A rounds from VCs. At Atomico, I focused on Series A and, now, at Cherry, I focus primarily on seed. Having seen the process from both sides of the table, I would like to extend my advice to early-stage founders.
Figure out who you want to raise from
Venture capital firms deploy money into startups expecting that a pretty high percentage of those will fail and that only a few will deliver fund-returning outcomes. Depending on the investment strategy and size of the fund, the size of those fund-returner companies at scale will differ. A $100m fund versus an $820m fund (like what Atomico most recently raised) will have different expectations about how big of an opportunity they are looking for. In general, early- to mid-stage VCs are aiming to return 3x on the money they raised to investors, which should give an indication of how big of an opportunity a fund looks for. (Andrew Chen at Andreessen Horowitz has a great piece on VC math if you want to learn more.)
When you’re trying to figure out which funds to raise from, first determine how large you could realistically scale your company and, then, how large the funds themselves are. A lot of information can easily be found through a simple search on the internet. But when you are talking seriously with funds, you should feel free to ask them about previous fund returns and their LP base, which are pieces of information that VCs don’t often publicly discuss.
Also, do your research on who the right person to approach at that fund is. Which partner has done deals in your industry or geography in the past? Have they written anything on Twitter or Medium about their funding philosophies, vertical focuses, or current investments? There are often experiences in their past that have shaped their areas of expertise and interests and, therefore, make them experts in some sectors and geographies. You want to dive directly into the core of the business rather than building the case of why this is an interesting area to invest in. So, to do that, find the partner who’s well briefed on your industry so lead times can be shortened.
Don’t forget — getting venture backing is like entering a long-term relationship. It’s a partnership that will last over many years, so conduct a proper due diligence on the VCs in the same way they do on you. I always recommend asking for references from existing portfolio founders and then collect some informal references from people who have experience working with a given partner and the firm. Through it all, you’ll find out if you share the same set of values, making life easier and, ultimately, more productive well beyond signing your term sheet.
Preparation is key
While you’re figuring out which VCs might be right for you, you also need to set a specific timeframe for when you want to raise money and determine what you need — and when — to seriously pitch. Timelines can change, but they are always good to have in your mind, especially in order to keep up momentum and not let the fundraise drag. A strong recommendation is to plan ahead and start raising money when you don’t need to otherwise you won’t set up yourself for success.
It’s well worth spending some time on creating a pitch deck that tells your story in a strong and appealing way. Personally, I’m a fan of storytelling and communications and, in these types of pitch meetings, it’s important to be able to tell your story smoothly and effectively in a inspiring way. Here, it’s important to remember that smooth storytelling isn’t just about attracting investors, but also gives a glimpse into how you’ll attract world class talent, business partners, and a customer base.
It’s a skill VC’s value.
Don’t miss my friend and former Atomican Evgenia’s post on do’s and don’ts in pitch decks or Y Combinator’s post on what to think about when creating your pitch deck. If you need inspiration, this website holds over 600 pitch decks from some of the world’s best startups and if you need a clean template our friends at Sequoia have shared one here.
You want the investment team to get a feel for who you are as a person, why you do what you do, why it matters, and why you are the person best positioned to do this in the world. It’s great to be bold and visionary while at the same time show you are data driven. You should know your North Star metrics in your sleep.
Other than your pitch deck, you need to have all the back up materials ready so it’s a good idea to prepare the data room and financial models so the investment team can dig into the numbers and run calculations in order to see if it’s a great fit or not.
Remember, you want to cover the macro dynamics you are utilizing, the competition you are up against, the team you have built so far, the product and how it’s essentially better than existing products out there, how you’ll be able to scale up your business to new markets and potentially new business areas or verticals, and how are you planning to go-to-market with it.
Have your data and pitch deck in order and show it to people you trust for feedback and to reiterate. Prepare good answers to all of the following questions:
● How come you started this business, what’s driving you?
● Whose life are you improving and why does what you do matter?
● Why are you raising this amount of money and what are you planning to spend it on?
● How long of a runway will this round give you?
● What are the most important milestones you want to achieve before the next fundraise?
● What proprietary technology have you built and is it IP protected?
● What’s your strongest moat?
● What is your north star metric?
● Have you found product market fit and does it show in your data cohorts?
● What’s your gross margin on average?
● What’s your path to margin expansion?
● How can what you do become more profitable with scale?
● What do you prioritize as you’re scaling?
● What’s your go-to-market strategy?
● How do you differentiate your product?
● What customer/user love can you show in numbers?
● How do you plan to scale up sales activities?
● What have you learned from the previous country launches/product launches/etc and what can you do better?
● What’s the team’s background and why do you think you’re best positioned to win this market?
Dealing with investors already on your cap table
When you raise a Series A, you will have angel investors and early investors who either do not want to follow on or do not have enough capital to follow on. This needs to be managed and depending on the cap table you have and the angels you have it can be easy or hard.
Have a look at what our friend and former Atomico angel Johan Brand wrote about cleaning up your cap table to get fundraise ready.
This is a bit of a hard one to explain. But I find that companies that build excitement and create momentum about what they are building have an easier time fundraising.
I think it helps if you prepare who you’d like to speak to and prepare all the documentation, the deck and the data room and lineup of references and then commit to a timeframe and try and be the one in the driving seat rather than letting the VC’s determine the pace of things. VCs can be fast when needed and when there’s a sense of urgency but they can also drag their feet if there’s no time frame communicated. They also have a big fear of missing out, so be frank with whom you are speaking to about why you have picked the ones you have and for what reasons you think they might be a good fit.
This includes involving people with proven track records. Is a former operator or founder of a successful company willing to come on as an advisor and help you? Ask for help from your friends when reaching out to VCs. Do you know someone that can give you a warm intro and a good review? Are there any meet-ups or events where you can meet up with investors? Hopefully you’ll have a set of existing investors with strong networks who can help you with intros and preparations. As I see it, it’s one of the most important value adds you can offer as an angel and seed fund so don’t forget to ask for help.
Do your homework on VCs and what really makes them tick. Trust me when I say that it’s exciting — really exciting — for a VC to meet a founder that truly has done their homework.
Finally, always, always underpromise and overdeliver.
Some advice from founders who have done it..
“Start preparing your ideal future Series A story right after raising your seed round. In this way you’ll clearly see what you need to prove to be able to tell that story. This will naturally make you focused when you decide how to spend your valuable seed cash to build the best possible position ahead of the A.” — Lucas Carlsen, founder and CEO at Hedvig
“When we kicked off fundraising for Series A, we had a polished pitch deck and an inspiring storyline. But after a few pitches, I realized that I was so caught up in the story that I wasn’t sharing our real challenges and worries.
So I stopped using the slides. It didn’t reflect the situation accurately. Because it’s my goal, first and foremost, to find an investor who helps us solve our issues. And such a relationship can only exist in openness and honesty. Conversations now began with the vision — making insurance better — followed by obstacles I see ahead, any potential roadblock to our success. In the end, we chose partners who were genuinely supportive and helpful.
Overall I see fundraising as a unique opportunity to learn and reflect on the blind spots. VCs are experts at analyzing trends and subtle shifts in the industry. They challenge your thoughts and preconceptions, and are an amazing source of market insight.” — Sofie Qudenius, CEO and cofounder of Omnius
“Choose your investor wisely, you’ll work with them for years. Raise significantly more money than your budget tells you too to give you room and time to get it right and keep innovating and remember it’s on you to build the company, it’s not on your investors, so take ownership of it” — Jakob Jönk, CEO and founder of Simple Feast
“Fundraising is hard work and it’s incredibly time consuming. But it’s worth it. It forces you to get your shit in order. It can inspire and challenge you to find blind spots. It can even help to connect dots you might not have noticed were there. So don’t expect an ‘easy ride’ but know you’ll come out the other side a stronger and better business than you were before.”— Elsa Bernadotte, cofounder Karma