What Founders Get Wrong About Series B (Part 1)

I have now been an investor for two years after 15 years of entrepreneurship. If I had instead been an investor for two years and then gone out on my own, I would have saved myself a lot of heartache! Sitting on this side of the table, you get hundreds of reps of pitches, materials, diligence, and partner discussions.

I have spent most of the last two years investing at Series B and helping portfolio companies prepare for this first ‘growth-y’ round. There is a marked difference in expectations of what a Series B company looks like versus a Series A company. As an entrepreneur, you have limited time to project that maturity to prospective funds. This is one of the lessons I wish I understood when I was raising a Series B. I will cover the key materials and collateral that will help you project that maturity and communicate your ideas successfully across a partnership. I hope you find it helpful when you navigate your larger raises.

A key complication as you progress from Seed to Series A and then to Series B is that the increased check size invariably means more people are involved in getting to a ‘yes’. Every venture firm has its own idiosyncrasies in how it votes, but understanding that when you get to larger rounds, you are truly ‘dating’ the entire firm. This means that you need to understand how to create materials that survive a brutal game of telephone from associates out to prove their smarts to founding GPs managing insane context switching and travel schedules.

CAVEAT: All of the advice here assumes that your company has the traction and long-term potential that merits a larger fundraise. All the tactics below can maybe tip the odds in your favor, but they will never guarantee success. The best strategy to secure additional capital is to build a great product that people love AND that is scaling profitably at the unit level. Unfortunately, in this difficult fundraising environment, effective fundraising tactics, extra polish on your materials and lots of luck are table stakes.

In this first part of a three-part series, we will cover what your materials should accomplish in a Series B fundraise. In the second part, we will go over the primary materials that lead your diligence process (strategy memo, deck, and forecast model). Finally, in the third part, we will go over how to tie your diligence materials together in one cohesive narrative.

It’s about what happens after the pitch

At a high level, your materials should accomplish three things: capture attention, transfer information with high fidelity, and minimize work. Some items, like a pitch deck focus on one of those three — capturing attention. Others, like your Due Diligence Questionnaire (DDQ), focus more evenly on information transfer and minimizing work. Understanding what you are trying to accomplish is vital to successfully creating materials for your fundraise.

1. Capture Attention

The first objective is to quickly and emotionally deliver information. I use the word “emotionally” very specifically. If you have made it to a Series B raise, you likely have the intellectual arguments clearly articulated. The art is in how to translate those intellectual arguments into a story that leaves your audience remembering both the key plot points (the brain) and how they felt while receiving the information (the heart). You need to emotionally capture attention so that two weeks into a diligence process, the people involved continue pushing everything forward. I love Maya Angelou’s quote that “… people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” Every deal that someone is championing means less attention in other places. We have never done a deal that one partner was not truly PASSIONATE about.

Ask any investor and they can clearly articulate the first pitch meeting they heard from one of their investments. If I look back at the deals that I shepherded through the investment process, I made the decision that I was going to move forward within the first 15 minutes based on how I was feeling. I’m sure my analytical side was working overtime in the background, but what I fell in love with was a story. There is no formula for this. Different founders and companies will connect with specific partners, firms, and styles of information delivery. But in every case, you will need to emotionally capture someone’s attention to kick off the positive momentum cycle necessary to get a Series B deal across the finish line.

2. Transfer information with high-fidelity

This is when things get more complicated. Suppose you had an incredible first meeting with a partner that was genuinely enthusiastic about your company. After the meeting, you feel that you nailed the pitch. You are riding a total high. Did you succeed at your job?

You might’ve captured her attention, but did you successfully give that partner the tools to pitch your company to her other partners and elicit the same response? Your materials and narrative need to be easily transferred across a partnership. That means that you are telling a story that gets better and better as it’s retold, not a story that is too complicated, too esoteric, or too niche to be transmitted successfully. If your company only shines when YOU are telling the story, it might get you to the finish line but it’s much easier if your story is self-evident.

The last thing you want your champion partner to hear from one of their colleagues is “I don’t get it… why are you so excited about this?” No matter how much you captured someone’s initial attention, if they do not get support while socializing the deal (remember, Series B is generally a multi-decision-maker process), their enthusiasm will erode. In a Series B raise, you are almost never dealing with a single decision-maker. Make sure your story can be transmitted with high fidelity.

3. Minimize Work

Congratulations — you captured a lead partner’s attention and they were able to get everyone else excited enough about the concept to do the actual work of doing diligence on your company. Remember, this is Series B. There are way more materials, financials, customers, employees, technology, etc. to review than at a seed stage company. People doing the work are signing up to roll up their sleeves and go through a lot of materials.

Don’t let them get lost in a maze. Investors will do the work, but you can make their job easier. If you make their job easier, they are more likely to think positively about the company. Making their job easier is not only organizing the material in a cogent way, it also sometimes means doing their work for them. If you provide a robust analysis of the competitive landscape with pros and cons of each of your competitors from your point of view, you are putting out a null hypothesis that the investor can never ‘unsee.’ You have set the rules of engagement. By making the jobs of the junior folks easy, you help them reach the conclusions you want them to reach.

Next up…

In the next post, we cover “the holy trinity” of diligence materials: your strategy memo, deck, and forecast model. These materials should lay out a blueprint for the rest of the diligence process. By closely coupling these three artifacts, you can better control how the process unfolds.

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.

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