Navigating the Series A Crunch
Raise Your Round Even in Difficult Circumstances
From our work with Visible.VC developing an index of investor sentiment and predictions for future investment, we’ve seen that investors believe there is plenty of funding available for seed rounds, but a much more limited amount for Series A rounds.
You might fall into a number of categories: not raising any capital yet, still gathering your seed, or raising your Series A. Regardless of where you are in the early-stage investment cycle, the crunch directly affects you.
Ultimately, based on our research, the Series A crunch is here to stay for at least the next few years, so you’ll have to grapple with it sooner or later. But that doesn’t mean your Series A round is doomed to fail. Here’s what you can do to prepare.
Take a Fine-Toothed Comb to Your Financials
When you’re dealing with an especially difficult round to raise, it’s crucial for you to know what your true capital needs are. Look at your budget and evaluate whether all of your items are correct. It’s critical that you know how much funding you need to make it through the next 18–24 months.
Going through your financials will also help you understand your burn rate, revenues, and general expense patterns on a clear enough level that you’ll be able to have an informed conversation with investors. This automatically adds to your credibility. Entrepreneurs who present shaky financials they don’t fully understand raise massive red flags.
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Understand the Logic Behind Your Numbers
It’s one thing to have data about your company, and another to know how your business operates. Understanding the elements of your business — your customers, your revenue streams, your employees, your growth trajectory, and so much more — allows you to develop a logic for predicting its patterns, both present and future. This will help you make decisions about future goals and strategies for growth, catch inefficiencies and opportunities for improvement, and finally, determine how to best measure your performance.
Your measuring mechanisms must be rooted in an underlying logic. Otherwise, the numbers you end up using to track your progress will lack real meaning. More importantly, if somehow the numbers you review or present turn out wrong, you can quickly correct them.
Knowing your numbers puts you in a better position to pitch your vision to investors because they can serve as quick reference points for success. Knowing the logic behind your numbers establishes you as an expert on your business, which doesn’t just make it easier to pitch, but demonstrates you’re investable as a founder.
Here’s a full list of numbers you’ll need to be prepared to understand and explain.
Be Honest with Yourself About Your Company’s Progress
Once you truly, deeply understand your metrics, you have to ask yourself an important question. If you were an objective third-party, would you invest in your company based on its growth, traction in the market, and potential for success? Have you hit the milestones you said you would hit when you raised your seed? If the answer is no, you need to take a close look at your business and figure out what’s keeping you from achieving your goals.
You might not be at the right stage for a Series A round, in which case you need to consider alternatives. Can you charge for your services and ramp up revenue? Should you consider a bridge round? Too often, getting caught up in the idea that you need to raise another round prevents entrepreneurs from honestly evaluating their companies and comparing options. Don’t fall into that trap.
Cultivate Strong Relationships with Investors
The more effort you put into building meaningful relationships with investors before you need capital, the more chance you have of successfully funding your next round. This applies to any round you’re raising, but will help you when you’re looking for Series A funding.
The investors that know you, the ones who have already dedicated a lot of time and thought to your business, are more likely to support you financially. You have less to prove to them, and they already have skin in the game. Plus, they can help you find other investors who will invest with them, reducing the amount of time and energy you spend trying to get funded.
Know How to Sell Your Strengths
What are the key factors that make you investable? Do you have a group of core power users? What about unique strategic partners that give you the competitive advantage? Ultimately, you need to be honest and upfront about your business when you pitch to investors, but you also need to sell what positively differentiates you.
Don’t get bogged down in explaining the details of your company; start simple. Articulate the pain the market, and your company’s true value — how it solves that problem so effectively it actually changes behavior. Then layer on your other assets.
This post is a part of the Q2 2015 Sentiment Index, a report put together by Visible.VC and Hyde Park Angels focused on understanding investor sentiment by surveying top angel investors and VCs from around the globe. The level of investor sentiment can be a useful gauge of probable future investment behavior, helping both companies and investors make more informed decisions around fundraising, hiring and growth strategies.
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About Hyde Park Angels
Hyde Park Angels is transforming early-stage investing by taking a people first approach. The organization is the largest and most active angel group in the Midwest. With a membership of over 100 successful entrepreneurs, executives, and venture capitalists, the group provides critical strategic expertise to entrepreneurs and the entrepreneurial community. Nearly 40% of our members have founded a company, 88% are CEO’s, top executives or corporate board members, and 100% invest in startups. By leveraging the members’ deep and broad knowledge of multiple industries and financial capital, Hyde Park Angels has driven multiple exits and invested millions of dollars in over 40 portfolio companies that have created over hundreds of jobs in the Midwest since 2006.
About the Author
Alida Miranda-Wolff
Alida Miranda-Wolff heads up communications and strategy at Hyde Park Angels, crafting and disseminating the organization’s brand in all forms across all channels. In addition to single-handedly building HPA’s integrated communications plan and executing its core elements, Alida manages membership, partnerships, portfolio company support, and all community engagement.
Prior to joining Hyde Park Angels, Alida served in a variety of journalism, marketing, communications, and management roles, specializing in creating spreadable multimedia content for tech-enabled businesses at all stages. Alida has run several Kickstarter campaigns, including one of the most successful in Chicago history, and still mentors companies running their own campaigns.
Alida graduated Phi Beta Kappa from the University of Chicago in 2014 with multiple honors and awards. She remains active in the university of alumni network, serving on five advisory boards and committees. Alida is also a published author and poet, with two poetry chapbooks currently in print, Domestic Scenes and Tree Fingers.
