To founders… Fundraise for Series A from a position of strength

Carmen Yuen
Oct 21 · 7 min read

Despite the pandemic, we are seeing encouraging signs of a strong recovery in funding deals all across Southeast Asia. From just the first half of 2021 alone, a total of USD $915 million was raised from 16 different funds, with a fair amount going to Seed and Series A stage companies. Though this was lower than the same period in 2020, we are hopeful that there is still ample dry powder available to deploy.

SEA Investments (2015–2021) US$ Bn (Source: Tracxn. Data extracted on 05 Apr 2021)

How can you then, as a startup founder, ride the wave and best position yourself for series A funding? Having spent a number of years in the Asean startup ecosystem, I would like to share my observations and tips on raising funds.

In summary, having the right timing, positioning, capacity building plans and market expansion plans help raise your chances of success.

Timing | When should I raise a Series A funding??

Raising series A is a different ball game compared to raising the earlier rounds and… the Timing matters.

I have observed many founders jumping into this process prematurely, oftentimes way before their business is even set up to handle the complexity that comes along with external funds. Consequently, they fail to pitch successfully and secure the funds they need.

Think about this, how would you be able to land safely — if you are flying and building a plane at the same time?

The right time to raise a fund is when:

  • You have built out your skeletal team
  • Your market has been validated to a certain extent
  • You have a valid business model that is (somewhat :)) scalable and replicable

Positioning | How much do I raise and at what valuation?

It may sound cliche but I suggest beginning with the end in mind. Since the funding raised will ultimately be channeled into helping you achieve your next business milestone, such as the expansion of your team or scaling into a new market, ask yourself:

The quantum of raise varies as it depends on what you, as the founder, seeks to achieve. For example, Grab raised their maiden round of USD $2.15 mil with us to venture overseas and Sunday Insurance raised USD $10 million for scaling overseas at series A too.

How much time you would need to achieve the next milestone also varies from business to business. But typically, 18–24 months would likely be sufficient to focus on the 2–3 business milestones that you are aiming towards.

You should also be aware of your monthly burn rate, that is, your monthly spend in order to attain the desired milestones. From there, work backwards and you would be able to determine how much money you need!

It is always tempting to raise more than needed. But I would caution against that, as raising too much capital early on can lead to over dilution. Naturally, your investors are often taking the biggest risk to fund you early so they would ask for a proportionally larger stake for each dollar invested, in return for the risks they would incur.

The other question would be, at what valuation should I be raising. In my experience, founders often tend to ask for a relatively high valuation though it is early in your startup journey. But instead of doing that, I would suggest aiming for a fair valuation and then seeking reasonable adjustments through the future fundraising rounds.

If your current valuation is too high, it may become a major source of friction with your investors if you fail to deliver. We have witnessed some startups that were fixated on the high valuation — to which investors agreed to fund them, yet their companies failed to execute on the business plan. That led to the aftermath of having to downsize and lose talent, manage upset investors and the stress of seeking white knight or raise loans to bridge the performance. It is just not worth putting yourself through such a grind.

On the other hand, if you can consistently execute on your business plan, your investors will be more inclined to follow on and give you more money to reach your next goal. At Vertex Ventures, we believe that the most sustainable way to increase a startup’s valuation for the next round is to simply ask for a reasonable amount, execute well, and deliver on your milestones. I’ve seen this working time and time again for founders through the years.

Capacity Building | My internal strategic partners?

  1. Invest in your Human Resource (HR): An often overlooked function, founders tend to take on the HR role or delegate it to junior staffers. However, it is crucial for founders to recognise the need to develop a carefully thought-out approach to hiring, developing and retaining talents to fuel business growth as you expand. You are your company’s best recruiter and you will be speaking with candidates all the time — deliberately or otherwise. You will need to scale yourself by involving junior staff (who shows the potential to grasp and grow into the role) to join you as you interview and dialogue with candidates. HR is essential to this and you would want to build a dedicated HR ‘team’.
  2. Bring onboard someone with the financial know-how: Having a high-performing finance person can go beyond merely balancing the books. This role is strategic and the finance person’s role stretches across different functions and competencies that will help your startup thrive and grow, such as setting and scrutinizing key metrics like your CAC and CM, not to mention optimizing cashflow which is the oxygen for your startup. He or she may also aid you on your fundraising and exit processes, investor due diligence and construction of sensitivity and scenarios analysis etc.

Market Expansion Plans | Who should I send?

Though Singapore is a great place to trial, pilot, test and validate, it is typically too small a market to support 10X growth. If you are growing your business, you should set your sights on expanding overseas. Vertex Ventures’ portfolio companies such as Grab, Nium, Patsnap, Speedoc and more have raised Series A and ventured beyond Singapore.

However, overseas expansion does not come without its challenges. Nuances in culture, language, ways of doing business and competition are among key considerations. So, how to expand successfully into new markets? Should it be at all cost? I don’t think it should be. Founders need to be thoughtful and strategic about expansion plans — the reasons for the markets that you choose to expand into first could be the availability of right customers, infrastructure or size of the market.

Case in point: Elena, the co-founder of our portfolio company Turnkey Lender, had taken the initiative to relocate her family to Austin, Texas just before Singapore shut her borders last year due to COVID-19. It was unsettling for us as investors and board members, however both Dmitry and Elena (as founders) felt this was the right thing to do as the company has seen strong inbound interests for their digital lending platform. Kudos to her, Elenas was able to get the legal paper works sorted out, hire the first team members (all within a micro budget) and now, the US market accounts for more than 50% of the company’s revenue. While we see what is on the front end, and we celebrate it, we must acknowledge the hard work behind the scene where Dmitry and Elena were juggling zoom calls with teams spread across markets (US, Ukraine, Poland, Malaysia and Singapore) and timezones. We had witnessed the superb teamwork between the founders and the senior team members.

When you are planning the expansion — check and see you have fighters and go-getters whom you can send to plant your flag abroad, all within a reasonable budget.

Parting words

Raising series A is an exciting phase in your startup journey. It is going to be a different experience from raising your seed round, as investors at this stage tend to be more demanding. As such, it is essential to make sure you are raising at the right time, for the right reasons and at the right valuation.

There is no good in rushing things. Don’t put the cart before the horse — prepare your startup well, way before you even start asking for the cheque. Do this so that when you do fundraise, you are coming in from a position of strength.

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Vertex Ventures

Vertex Ventures is a global network of funds.

Vertex Ventures

Vertex Ventures is a global network of funds, comprised of affiliates in the US, Israel, China, Southeast Asia and India. This is a unique platform our portfolio companies realize by leveraging the combined experience and resources of our global partners.

Carmen Yuen

Written by

Vertex Ventures

Vertex Ventures is a global network of funds, comprised of affiliates in the US, Israel, China, Southeast Asia and India. This is a unique platform our portfolio companies realize by leveraging the combined experience and resources of our global partners.