By Claire Biernacki, MBA Summer Associate
As companies wait longer to raise more capital, expectations at the Series A have evolved. Seed investments today look more like the Series A rounds of a few years ago, and Series A investments are getting larger, too. Given this recent shift in the fundraising environment, many seed stage founders and investors are wondering: what does it take to run a successful Series A process?
To help answer this question, I spent part of my summer at Lerer Hippeau studying current investor expectations for early-stage companies on the road to their Series A. Leveraging this research, my experience working with startups as well as insights from Lerer Hippeau’s team and portfolio, I created an internal database of resources for seed stage founders. I also developed a list of best practices for each stage of the Series A process (before, during, and after the pitch) that founders going out to fundraise this year can keep top of mind. Here’s my roadmap for founders preparing for their Series A.
Before the pitch
In addition to preparing a pitch deck, financial model, and data room, I recommend that founders consider the following steps prior to pitching their Series A.
Know the market: Getting a sense of the metrics that are typical for companies raising a Series A can be helpful in understanding your position in the market. For example, most companies raising a Series A have a minimum of $100k in monthly revenue and are growing at least 10% month over month. But while certain metrics can offer a helpful point of comparison, it’s important to keep in mind that every business is different.
Plan your timing: Start preparing for the Series A fundraise at least a month in advance of the first target meeting date in order to allow for competing priorities and scheduling. Keep in mind that getting meetings on the calendar towards the end of August or December might be difficult due to travel or vacation schedules. Make sure to give yourself enough time to iterate on your pitch deck and to incorporate any feedback you receive from your seed investors. While having enough time is important, also make sure to create a reasonable timeline so that the process doesn’t drag out for you or prospective investors.
Survey the landscape: Research potential investors to determine which firms might be the best fit for your round. Consider individual investors and prospective early-stage funds. Check if funds have portfolio companies that are similar to your business. Take note if you encounter any competitors in those portfolios because that might prevent funds from investing. Websites, social media, and blog posts can also provide useful insight into various firm strategies and focuses.
Make a target list: Once you have a sense of your options, list out the investors you’ve identified as potential partners then use a tiered approach to build your target investor list. Label your top-choice, second-choice and lower-choice investors, that way you can be strategic with your outreach and better manage your time.
Loop in early backers: Check to see if your seed investors would like to follow-on in the Series A round before you start meeting with new backers. Some Series A firms will ask if seed funds plan to be supportive, so it can be helpful to lock it down in advance. This communication will also inform how much of your round you’ll have to fill.
Work your network: Leverage your seed investors and advisors to determine who can provide warm introductions to prospective Series A investors. Share the list of your target investors with this small, trusted group. After noting where you already have relationships (i.e. investors you got to know during your seed round), leverage your network in case it can fill in gaps in outreach.
During the pitch
Be adaptable in meetings: Meeting formats will vary depending on who you’re pitching. You should aim to send your pitch deck to investors a few days in advance, but know that some investors might not review the deck in detail beforehand. If this is the case, you could end up driving the conversation. Other investors may have spent time studying your company and space and will have questions prepared. Whether the former or the latter is the case doesn’t necessarily reflect the firm’s interest in your company.
Tell your story: Sometimes founders forget to share the story behind their product or emphasize why they’re the right team to execute on the opportunity. Investors will ultimately decide to move forward because they’re excited about the future of your business rather than the last 12–18 months of performance. Including a slide on long-term growth opportunities or, at the minimum, speaking to the big vision for your business will help investors visualize the potential.
Know your numbers: Be prepared to answer specific questions during the pitch about budget, burn, and recent performance. Errors here may be a deal-breaker for some investors.
Ask questions: At the end of the meeting, leverage the research you did beforehand to ask investors a few closing questions. Potential asks could include “How does your team add value post-investment” and “What’s your team’s typical timeline for making a decision?”
After the pitch
Follow up: Send a thank you email to the investors you met and include any relevant follow-up materials. This note is an opportunity to send across data room access if requested during the meeting. If there’s a question you feel was not appropriately addressed during your conversation, you can provide additional details around that topic.
Incorporate feedback: Add any questions you received from prospective investors to the question list you pulled together before the pitch. If you start to see a question come up again and again, prepare a strong answer and consider adding a slide to your pitch deck to more completely and proactively address it.
Have you developed other best practices for approaching Series A conversations? Share them in the comments or tweet me.