Marie’s guide to raising a 10M+ round in 2023

After several frothy years, a nuclear winter descended on the VC and startup communities during the last 6 months of 2022. Fundraising plummeted, and valuations weren’t far behind. Most founders avoided raising follow-on rounds because they sensed the market was unresponsive. The ones who had to raise mostly did internal rounds or beat the odds through sheer force of will.

This downturn didn’t impact all stages equally. Later-stage funding almost completely evaporated as big international funds retreated. At the other end of the spectrum, Seed funding remained stable as the growth in business angels, family offices, new Seed funds, and Bpifrance support kept the checks coming.

However, those “easy” Seed checks only go so far. Series A is once again the cutoff round it used to be. The good news is that we’re out of the nuclear winter. But that doesn’t mean things have gone back to the way they were before. The dynamics have changed. VCs are investing, but they are far more selective: The bar is higher.

It’s not exactly new territory — raising a 10M+ round has always been hard, especially in Europe, exception made of the timeframe of 2019–2021. But most founders did not experience these times and I thought I’d dig back the “tough times” playbook that had helped my portfolio companies and former customers raise theirs with a 95% hit rate (sorry Nicolas 😓).

1. Reading the landscape

A. Bigger funds seek bigger returns: The scissor effect, Part I

Most entrepreneurs and startups are caught between two diverging trends that are creating a scissor effect which will make it increasingly difficult for many (but not all!) to raise venture capital. On one side of the scissors: Series A VC funds are growing in size reaching more than $500m, sometimes more than $1bn. To make the returns they need to deliver, they must find companies that have the possibility of reaching valuations of $5bn or more.

Source: Dealroom

If your startup’s potential valuation is capped too low, no one will touch it. Startups that take bigger risks that could lead to bigger rewards are more enticing. Even if you approach a smaller fund, the same logic applies because eventually, they will want these bigger funds to invest in later rounds.

Davis Hsu, Founder and CEO of Retool, put it best when he recently wrote: “Investors invest because they think you have a 10% chance of being a $100bn company, not because of how you beat last quarter by 20% or because your multiple is ‘cheap.’”

B. The business case is tougher: The scissor effect, Part II

The other side of the scissors is valuations, which are way down across most categories. They don’t leave a lot of room to dream anymore.

Good SaaS is down 60+%

Source: Meritech

Insurtech is down 85%+

Source: NYSE & Nasdaq

For an enterprise software startup, valuations are running at 10x to 15x of ARR for the really, really, really, great stuff. A year ago, it was 20x to 50x. The median valuation of public SaaS companies is at 6.2x next twelve months revenues (similar to ARR quite a bit larger).

InsurTech has fallen from 7x+ to 1x or 2x of gross written premium (GWP), basically dropping about 80% to land around the multiples of traditional insurance players.

So to recap the scissor effect: VCs need to back €5B+ companies but it’s 4x harder to hit such lofty valuations. And there are no shortcuts here. These mega-funds have massive teams with nothing to do but due diligence (more on that below). They need to see that the business case really works.

C. Many VCs are fundraising and finding it tough

Venture firms are feeling the hangover from the good times. Typically, when a firm closes a fund, it will deploy that capital over 3 to 5 years. But in the frenzy of the last 2 years, many VCs accelerated deployment as they chased hot deals and invested almost all of those funds. So, they’re out trying to raise new funds sooner than they planned.

At the same time, LPs aren’t in a rush. In fact, between rising interest rates and high inflation, many asset managers are turning back to safer assets, classic investments that deliver higher yields. They’ve hit the pause button on exotic assets like venture capital.

With their pockets empty, a growing percentage of VC firms are simply not in a position to invest, and may not be for some time to come.

D. A new hope: There are new partnerships and people who ARE taking risks and underwriting deals

So entrepreneurs have big hills to climb. The major investors are being super picky. Founders need to promise larger potential valuations. And a herd of VCs are simply running out of cash.

BUT… there is hope. People continued to invest during the nuclear winter, and if we look closely, we can see some common attributes of funds that remained active. They tend to be smaller ones where the GPs (often the fund’s founders) make the investments and don’t have an army of analysts. Unburdened by internal politics or cumbersome decision-making procedures, these funds are more agile.

Most of these more “entrepreneurial” Series A firms are often leaner in terms of team size to be more reactive but not necessarily smaller in AuM. Most were created in the last five years and are in brand-building mode and more involved with their portfolio — just like their equivalent seed funds of the last wave, this is good for founders!

E. Maybe you don’t need to raise from VCs at all

Finally, let’s not forget that there are many ways to build a company and finance entrepreneurship. Raising venture capital is just one of those ways, even if it does tend to get all the hype. But if you can’t raise, that’s okay. You can still launch and build a great company. In fact, one could argue that maybe you shouldn’t even raise money from VCs in the first place. :-)

Source: Crunchbase, company websites

Remember that even before this post-nuclear-winter period, only a very, very small subset of companies actually raised Series A rounds, despite how it may have looked from the outside. Now, that subset is even smaller.

Here’s the good news: There are new ways to fund your tech company that did not exist before, such as revenue-based financing platforms (RBF) like Silvr and Wayflyer. And then there are smarter banks like BNP or Memobank whose models have adapted to make them more favorable to providing alternative financing to startups.

Finally, there’s good old-fashioned bootstrapping which produces many of the best outcomes for founders compared to startups backed by VCs. There is a healthy list of self-funded businesses that waited several years before raising outside capital, allowing founders to retain more of their shares and negotiate valuations on better terms.

Data analytics startup Kpler, founded in Paris back in 2014, took its first outside funding in 2022 when it raised a $200m round that only gave investors a minority stake in the company.

Materialise, the additive manufacturing company based in Belgium, is another bootstrapping poster child. When the company went public in 2014, it had only raised €5m and reached a €500m valuation. But, the founders still owned 85% of the company at the IPO.

Compare those 2 outcomes to Criteo. The adtech startup was one of the first big successes of the French tech ecosystem, and one of the happy few startups backed by French VCs to reach the €1B valuation mark as a public company. The company went public in 2013 and reached a market cap of €1.67B on its IPO day. But by then, the founders only held 20% of the company

2- Still want to raise that Series A? Let’s talk tactics

A. Understanding the process

All VC firms operate more or less the same way.

1. First, there’s a discovery meeting (and sometimes 1 other meeting plus follow-up questions) with the point person at the firm to see if they are persuaded by the idea or founders. For this stage, you (usually) need a pitch deck.
2. Next comes an internal committee (or decision by that point person if it’s a smaller team) to discuss spending time, money, and internal resources on due diligence.
3. Now you need a place to put the due diligence materials, which include a bigger deck or Notion page, plus your business plan. And depending on the business, a data cube in Excel.
4. Finally, an internal committee and partners meeting. Use the original “wow” deck for this one.

Here’s the cold truth: 95% of the time it’s not productive to speak to an analyst/“investor”/associate/junior person at a big firm. Look at their LinkedIn profile to understand what they actually do besides their title. It is also NOT a positive signal if people with these profiles ping you between rounds. It’s their job to maintain the CRM. They are just checking a box. It does not mean someone is actually interested in what you do.

What matters is an intro to a general partner ideally or a partner (or someone who can make a deal). Some firms have found a clever way around this and call everyone partner. ;-) At some firms, a principal can lead a deal (but usually not in the US).

Research and focus on people who have (1) invested in your space, but not in direct competitors; (2) ideally invested (at least as a firm) in your geography; (3) speak your native language if it’s not English.

Then you either have the intro from your seed investors/angels/CEO friends, or you don’t.

It’s better if you have a great intro. BUT, cold emails do work if they are well-written. Here’s an example:

I’m X and my co-founders are Y and Z. Our track record is this and that and we are relevant to this problem space because of this and that and that’s why we built the company.

We’re on a mission to xxx and [rationale why this is an important idea that could be a €5bn company. Don’t bullshit this part.]

With our Xm€ seed round raised from xxx/yyy (if cool names), we achieved this and that (PMF?) and now want to reach this and that (scale GTM to…) with a Xm€ Series A.

Xxx recommended you/We thought of you because you did x and y and we’d like an investor super familiar with this gtm/space who can challenge us on xyz.

I’m in NYC/London these 2 days for the roadshow if it makes sense to meet over coffee to discuss this.

(Do not attach the deck but send it ahead of the meeting)

Triple check things like the spelling of the person’s first name and their correct gender because it looks sloppy if it’s wrong. The writing should not be too formal.

Now here’s some common sense that everyone should know:

- the CEO and only the CEO contacts investors and leads meetings. If you’re a duo, this works too (“co-founders”, “co-CEOs” or whatever). If you’re not called CEO, do not send the emails. It’s weird. It’s the CEO’s job to raise money and manage investors, no one else’s.

- Do not contact multiple people at one firm. Research the right one and get an intro. This confuses people and will likely result in a pass.

- Do not send your email from a CRM or with a tracker. This is not 2015 anymore and it will feel spammy and probably will be filtered into a black hole.

- If you have to cold email, personalize them, and don’t get the name or gender wrong. True story: Every week I get multiple “dear Mr. Brayer” emails.

- Linkedin can work, but most VCs hate it because it’s bad when you get a lot of messages there. They are difficult to manage and annoying. Do not use InMail to ask for a connection if you want to use this route.

B. The meeting: Engineer a wow moment

When you are a VC and you meet a founder with “the right stuff”, it usually triggers a full-body response (as in F¨¨¨¨YEAH) which is the result of a pattern recognition developed from years of being an investor. People who have been exposed to a lot of great stuff in a deep manner have better pattern recognition (this can mean tech investment banking, intense DD at growth stage in a mature ecosystem, angel investing, working for a great accelerator, making the very rare jump from “junior person” to director in a tier one firm, or deploying a lot of cash at the turning point of an ecosystem.)

Some founders (some humans :)) generate this instinctively in other people. If this is the case for you, well, congratulations. Life will be one long easy street and you won’t need the following tips.

Don’t panic if you’re a secret introvert. Some people suck at public speaking or do not give off “charisma” vibes, and that’s okay. The good news is that most of the really great founders I know did not have this initially and figured out how to reverse-engineer it.

The Wow equation of the first meeting with a VC is actually simple to grasp, but not so simple to execute:

— > Do present a data-backed VC business case; don’t just talk about what you are doing.

— > Do be very opinionated and bring up your unique insights very quickly and clearly; don’t waste people’s time with a meeting where they learn nothing new.

— > Do be very clear and genuinely confident about your massive ambition; don’t just talk about tactical next steps or about your ability to break-even.

— > Do sound like you are genuinely looking for the best partner/deal in a pool of various options; don’t sound needy or in sales mode. (Yes, this is exactly like dating)

There are some implicit skills behind this “perfect first meeting”:

- Take the time to know how VCs work, the lingo, the process etc. Research the right top 10 firms and partners for you.

- Be very self-aware of your strengths and weaknesses as a CEO when you pitch. Know the same about your company. Practice this with someone who has done this a lot and who is really willing to give you harsh, real feedback. Otherwise, it won’t help you.

- PREPARE. A LOT. FOR WEEKS. I’M PUTTING THIS IN ALL CAPS BECAUSE I CANNOT STRESS THIS ENOUGH. Hone your messaging. Refine your documents until they are perfect. And work on that delivery until it is smooth. Friends, 2021 is over. :)

Ok, enough all-caps for now. But you must understand that the first meeting (often the first 10 minutes) is the most important step of the whole process. It’s the key moment when someone will build their conviction (become “hot”) about you and the company. If this fails to happen, they will likely pass.

You need to be memorable and intrigue them. Then they will try to “cool themselves down” by doing due diligence. If the quality of the DD matches the first impression, they’ll remain closer to that hot zone. Whereas, it is close to impossible to get someone hot after a mediocre first impression.

Pro tip 1: The material (deck/Notion, etc.) matters a lot because it is all that remains when you leave the meeting. Not only for your point person at the firm but more importantly with everyone else they will speak to and pitch internally about it. That deck (or whatever), has to stand on its own and be awesome without your charismatic voiceover.

Pro Tip 2: PAY. A. DECK. DESIGNER. And for the love of all that is holy, avoid cringe-inducing stock photos.

C. Due Diligence

I could write an entire article about this (and probably will!). But for now, I’ll summarize what people will need while also offering a pointed reminder that they will figure out things on their own if you don’t provide great content that answers all the questions before they ask them:

- Typical Q&A in a written form.

- Competitors overview that is actionable for the VCs. Not just product features but traction data if you have some, along with geography, funding, team size, tech stack, strengths and weaknesses of their platform, etc.

- Product demo/tech stack overview that is absolutely killer (a meeting Is often better than a loom video to fill in the blanks).

- Substantiated analysis of the market opportunity (saastr style).

- Data cube with all the classic metrics for your business model. Plus, if you have salespeople, how good they are doing vs your future topline hypothesis.

- Business plan built correctly (as in not top-down) with the historical data built-in (please do not do Y1 Y2…).

- Bios of all the key hires and founders.

- Pipeline data/usage data … whatever is relevant for your business model and sits right before the topline.

- Customer references ready and with a 1000 NPS.

- At some point, audited historical P&L.

- If you are opinionated about something, disclose it!

- Publications and articles in the media if they are cool and relevant.

Pro-tip: Recently I worked with a founder on a process and he met a lot of really big US platforms. One of them called ALL of his 20+ customers (we told them this was fine thinking they would call a few). ALL OF THEM. And produced an Excel sheet of 50/25 with the reconstructed detailed use cases, usage, and feedback per customer. Another one used “Expert platforms” that send LinkedIn messages to all the semi-relevant C-levels from our key customers with our general blessing but without our specific knowledge as to who exactly they were talking to. One person they talked to gave them second-degree information that was incorrect and fortunately, we caught it. ==> This can be brutal on your customers and you. Just be clear as to what is ok and off limits, and offer references that are reusable (videos, testimonials, reviews, scripts…).

D. Taking feedback

The best possible outcome of a first meeting is: “Let’s book another meeting.”

A 50/50 outcome is: “Oh, send us your data.’”

Anything else, particularly compliments, is a pass.

If you start with this mindset you will feel less emotional about the journey.

Account for cultural differences. People in VC in general tend to say only positive stuff, plus the US culture to not be confrontational. A positive answer like “Oh great”, “mmhm”, etc means nothing.

Actions, not words, have meaning: A physical response means something (voice gets higher, people get agitated and lean forward, …). Someone who switches from passively listening to challenging you means they’re interested. Someone offering intros is interested. ==> All the rest means nothing

If they pass after the meeting, most of the time this will happen:

1. When they offer feedback, people will either not be direct with you…
2. …say completely absurd things because they did not get it or don’t care…
3. or offer constructive business feedback (that you are free to challenge but not with them, because once they pass, they don’t respond).

Let’s assume that they like the space or opportunity a little bit since they met you. In that case, the main reasons people pass are the following (and there can be more than one reason):

1. This team does not know the venture game well enough and won’t be able to raise follow-on (series BCDE is hard).
2. They don’t think that this team will be able to execute their ambitious plan.
3. They did not like the energy of the team and just don’t want to spend the next 5 years with them.
4. There is nothing wrong per se with this team, but they would not raise the bar of the VCs portfolio quality and they believe they can do better.
5. After diving into the details, the VC was not convinced by the market opportunity, even though the founding team felt strong (rarer).
6. Actually, this does not fit the VC’s investment thesis because of new information provided during the meeting, for instance, they feel that the deal is going to be too expensive.
7. (For all the non-English natives out there): They leave the meeting thinking, “Wow, their English was terrible. I don’t see how US-based VCs/customers/partners can interact with them.”

You will not get this feedback unfortunately but you can get it indirectly.

1. Try and have someone (a co-founder) attend the meeting to pick up on the subtle clues from the person you’re talking to. Do they harbor markers of impatience, are they very passive, or are they very engaged? If they stop to be engaged, what seemed to turn them off? Be very data-driven on this and surround yourself with people who can give you harsh and honest feedback. Before pitching, record yourself on video/audio to identify what you like and don’t like. Again, I don’t think everyone will need this, but if you have an unexpectedly low conversion rate from first meetings, do this.
2. Ask the person who did the intro to get raw feedback from the people you met. It is easier for them to give it this way.

One last important thing you need to do: Batch your process:

1. A batch of 5–10 “challengers”: Smart people who get it from firms that are not your top 10 choices, but who will “behave” like the people from the firms you want but are more demanding.
2. Your top 20 list (2–3 weeks after)
3. If you don’t get any traction from your ideal list, move on to the filler list.

BTW, in between rounds, here’s how to take feedback from a coffee:

1. They ask for more stuff (data, a second meeting etc). → GOOD. Push back on the data or second meeting, you’re not ready to raise.
2. Let’s set up a catchup date in xxx months/weeks. → GOOD (be careful to respect your time, do this only with people you like a lot).
3. “Happy to meet again when you raise.” → MEH they see how you can get there but clearly see no urgent need to build the relationship with you.
4. Anything else or no follow-up → failed meeting.

E. All the rest /the meta

Probably not everyone will need to do all of this to raise. The meta here is: How is it that you can optimize your chances to get the best signaling + board member + round size + chances of actually closing it?

A good funnel looks like this (modulo the waves we talked about): Overall, 40 relevant VCs in your list → you meet 30+ of them → 10 or more (ideally more) enter DD following a great first meeting → 5 survive the DD, →1–4 offer a term sheet → you pick one or two co-leads and complete with followers if needed.

It usually takes at least five meetings to get a term sheet. You’ll need exciting content for all of them.

If you have angels or VCs from the seed stage, you need them up to speed and very friendly and hyped about you. VCs will often call them first.

Don’t rush the launch before you nail the message. Docs take 1 month to make if it’s your top priority. Don’t book meetings with half-baked stuff. Once you’ve had the meeting, it’s over forever.

You’re building relationships, not selling. Make sure you genuinely bond with the person. Meet people in person if possible. Don’t do calls.

Respect yourself. If the person is late/ calls from their car/switches to a junior person (yes this happens) ==> reschedule. You’re busy, too, for fuck’s sake.

Respect the person in front of you: Be on time and research the person and firm to a sufficient degree to know their context.

Don’t get dragged into Q&A mode. Reframe to your narrative without being rude.

Offer memorable anecdotes. This is always a good counter to someone in DD mode.

Nothing kills a meeting faster than bad audio. If you cannot guarantee good audio from your end or theirs, reschedule. For a partners’ meeting (which you can’t reschedule), if it is by video, be extra, extra sensitive to sound quality.

Special parenthesis for my French friends: There is a very, very, very finite list of bankers who will help you raise a Series A not destroy your chances forever if you feel this is the way you’re going. 99% of US and pan-EU VCs will automatically pass if they see any banker btw. So only go this route if you’re targeting the French market (or if they operate in super stealth mode, but it’s uncommon).

The A is also “easier” than the B. So, this is the time to up your game as the CEO following an “easier” seed round. If you rely completely on someone else, you’re not going to learn enough.

Also, let me bring back the ALLCAPS one last time to drive this home in case it’s unclear: The key is A LOT OF PREPARATION.

If this all feels a bit daunting, well, it should! At the same time, it shouldn’t deter or discourage you. Even in the best of times, getting a Series A check was never as easy as it looked from the outside. Even the teams that seem to have it easy all encounter that one round that is saved last minute by an unexpected (and unique) term sheet. It all comes down to having the drive and ambition to convince others of your company’s potential and committing to overcoming the “funding” game which is and will always be an essential part of the tech founder journey.

Good luck!

Marie

ps: if you do something in Enterprise SaaS / dev tools / infra and want a quick reality check on your process, email me at mary@fly.vc — Happy to help!

About Fly:

Fly is a specialized VC for technical founders solving hard problems. We invest from day-zero to seed, backing founders from all over Europe.

We are fortunate to have been on the zero to one journey with portfolio companies who have raised in excess of $1Bn in follow-on funding from some of the world’s best VCs.