Going from Seed to Series A in a downturn

In May, we hosted a virtual roundtable discussion for early stage female founders on going from Seed to Series A in a downturn. The discussion was led by Irina Haivas, Partner at Atomico, Stacy Kim, cofounding Partner at WSGR London, and Maren Bannon, Partner at January Ventures. Here are some key takeaways from the discussion:

• What are investors focused on now: Many investors spent the first month of COVID-19 focused on their portfolio. Many have put more capital in and extend runways before looking at new investments. Now that this has passed, more investors are working to get to know founders over Zoom and make new bets.
• Advice for portfolio companies now: We’re advising portfolio companies to get to 24 months runway, or at least as much runway as they can, for instance by rethinking priorities to focus on what matters most, or delaying non essential expenses.
• Bridges: March saw an increase in convertible notes. These are often for emergency runway. If you haven’t hit key metrics and are using a bridge to prolong runway, it can influence valuation and terms. If you do need to extend runway, go to your current investors first. They are incentivized to help.
• Terms to look out for: You may see higher discounts on notes. Preliminary data is showing more focus on downside risk mitigation, for example asking for a 2x return upon a change of control.
• Future Fund: They will match investments with certain criteria. Terms are market, except there is a most favored nation clause which means that if you agree to any more favorable ones down the road, Future Fund gets the pull up. Whether you decide to take this depends how much you need the runway.
• US investors: Record amounts of funding coming from US VCs investing in European startups in past few years.Research found that in 2019 only 2% of Europe/UK companies had financing led by US investors. These companies already had some footprint in the US and that helped them demonstrate their “US story.” US investors are more likely to come in after Series A.
• Advice for preparing for Series A: Scarcity creates focus. Ask yourself what is the core thing that drives the success of this business? Then make sure you are organized the right way, are striving for the right goals and have the right people on board.
• Relationship building in a remote world: If you’re thinking of raising Series A more than 12 months away, don’t let relationship building distract you. Be selective in talking with investors you think could help you, but focus on building business.