Built to Scale: CEO Workshop Recap — Raising Series A with Tod Loofbourrow

Russ Wilcox
May 15, 2018 · 6 min read

Pillar’s Built to Scale: CEO Workshops series brings together a select group of early-stage ounders to learn from proven Boston CEOs. Each interactive workshop focuses on a core topic related to building a high-performing company.

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We officially kicked off Pillar’s Built to Scale: CEO Workshops last week with serial entrepreneur, Tod Loofbourrow, CEO and Chairman at ViralGains.

Tod became interested in technology early, and used to build computer-controlled robots in his basement (he even wrote a book on it as a kid!). Having started and run multiple tech businesses including Authoria and the healthcare division of iRobot, he’s been through the start-up rollercoaster several times. Tod led a session on ‘Raising a Series A’.

A dozen Boston start-up CEOs attended the workshop, who are working on everything from health and biology to blockchain to enterprise software to high-resolution 3D printing. All had raised seed rounds and were starting to think about their Series A. (As a reminder, you can apply to attend one of our Built to Scale: CEO Workshops here.)

With a caring attitude and his warm smile, Tod shared inside stories from his fund-raising experiences, which led into “Tod’s Not-So-Top-Secret Top 5 Capital Raising Priorities In Order.” (link to his slides here)

What order should you prioritize in raising Series A?

1. The individual who will be on your board.

It is not the firm that matters most, but the individual from the firm who will be sitting on your board. They should be a good match for you personally. Look for someone who could be one of your co-founders. Look for someone you can trust. It’s all about chemistry.

Employ the no jerk rule.

You should know the position of the person in the firm. Some partners are doing well and have more say. A Principal could still be a good fit if they have the time to work closely with you and that fits what you want from an investor.

2. The VC firm’s understanding of your space.

How do you find a firm that feels confident to invest in your space? By spending a lot of your time up front, on targeting. Do your research!

Ideally they already had a win in your space, or they have a thesis and are actively looking in your space, or a partner is already invested in a company that is similar to the company you want to build but in another space. Find a reason why they would want to do your deal before you approach.

Don’t waste a lot of time on firms who burnt their fingers in your space already, because they generally won’t revisit.

Some audience members asked how to target for a VC firm if their start-up crosses multiple spaces and is kind of a mix? Tod’s reply: focus on the firms who have seen and become comfortable with your business model before, even if they would now be applying it to a new application.

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3. Alignment of management and investor’s interests.

Alignment is NOT about valuation and it is NOT about dilution. Focus on aligning with the investors on governance and participation terms since those are how investors will actually affect the company after the deal is done.

Stop worrying about valuation. You realize at the end of everything that early-stage valuation does not really matter at all. It’s your relationship, not your valuation. Take the valuation that gets you the best relationship.

As your company goes through rounds, it will gradually accumulate a syndicate of different investors. You need them to be all compatible with you and with each other.

Beware differences in liquidation preferences, expectations of a “good” exit (often varying between large and small VC funds), and whether they already had a big exit in the fund that is investing in you (at which point they may be more willing to take risk).

Get a new lead for every new round, because insiders’ interests may not be aligned with yours.

4. Reference calls to the CEOs that person has invested in.

Ask the CEOs how it went? First-time CEOs want to help each other out and will often share the facts, warts and all.

VCs don’t always have homeruns — you want to know how did they react when things did not go according to plan?

Good questions to ask: “How do I make this VC a better partner? Where was the VC most helpful? What was your toughest time? How did you tell the VC something that they didn’t want to hear? Would you choose them again for your next company?”

5. The specifics of the fund you are in.

Ask the partner which stage of the fund you are in. Most funds have a ten-year life. Try to avoid raising Series A from a fund that is late in its lifecycle. It can cause the VCs to become impatient and perhaps push for an early sale.

We then moved into a lively Q&A:

Q: What are the milestones you need to hit for a Series A? And how do I set forward projections like a 5-year plan?

There is no hard rule for what qualifies you to raise Series A. Even the term Series A is changing — it used to mean a $2–3M round and now $2–3M would just be called Seed.

At the early stage, investors often look to you to define what your own milestones and goals should be.

Tod’s strongest advice to any new CEO is “underpromise and overdeliver”.

Nobody can project ahead for 5 years with any accuracy. Tod prefers to look out 3 years at most. (So when VCs ask beyond that, they are not trying to hold you accountable to metrics, rather they are trying to get a sense for how big you think the business can grow, and you long term you are thinking at building a major company.)

The ideal metrics to show are NOT the projections for revenue rather it is your unit economics and the number of customers over time. Unit economics means, how much you make on a single order, and what that suggests about cost of customer acquisition, customer value, and cash flow.

Always give projections that are bottoms-up (customers or units x price) and not tops-down (10% of a $gazillion market).

Q: How many VCs should I meet? How do I convey confidence and create urgency?

Do your targeting, so that every person you meet is a good use of your time. Do not spray and pray. Invest the time for research to target well.

You want to be ready with a list and to reach out to a handful at the same time so you can run a process that does not drag out. There will be negative buzz if the deal gets stale without closing.

It’s a great idea to time some PR or advertising just as you are going out, especially in media in places like Boston, New York or San Francisco.

You are looking for someone willing to lead. If they say “I love your company, let me know when you have a lead.” that is usually a nice way to say no.

Don’t name the names of other VCs who are in your process as they may compare notes.

Avoid hype / pressure / “you’re gonna lose the deal”… these are red flags to investors of your arrogance.

Both sides are trying to build trust. Trust is built over time. They need to assess CEO risk which means — Are you coachable? Do you put the company’s success ahead of your own ego? Are you humble?

Tod wrapped up with some enduring words of wisdom about being a first-time CEO:

What first-time CEOs think they should be:

  • The smartest person in the room
  • The person with all the answers
  • “I know how to sell investors.”

What CEOs really need to be:

  • Smart, Collaborative and Humble
  • Trustworthy — do the right thing when nobody’s looking
  • Good listeners who take feedback well and can be coached
  • Secure enough to bring in great talent
  • Able to delegate effectively

Thank you Tod, for a great session. Thanks also to Vidhan Bhaiya for help preparing the recap.

Pillar VC

VC doesn't have to be the darkside. www.pillar.vc

Russ Wilcox

Written by

Partner at Pillar VC. Founder and CEO of E Ink, Transatomic Power, Piper Therapeutics. Investing in AI/ML, digital health, synbio, quantum, robotics, etc.

Pillar VC

Pillar VC

VC doesn't have to be the darkside. www.pillar.vc

Russ Wilcox

Written by

Partner at Pillar VC. Founder and CEO of E Ink, Transatomic Power, Piper Therapeutics. Investing in AI/ML, digital health, synbio, quantum, robotics, etc.

Pillar VC

Pillar VC

VC doesn't have to be the darkside. www.pillar.vc

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