The following is part of a four part series on tips for getting from Seed to Series A.
Much has been written about the Seed to Series A trough or valley of death. It is no doubt more challenging to raise a Series A than it is to raise a Seed. Institutional investors (venture capitalists) require much more proof that you have a great team with a good idea that is targeted at a potentially enormous market opportunity.
In Part I of this series I’ll be outlining some tips and techniques for how to prepare for the Series A fund raise. Part II will focus on the various types of presentation materials you’ll need. In Part III I’ll discuss approach and timing and Part IV will cover delivering the pitch and beyond.
What To Do Prior to the Capital Raise
Know and be able to articulate your Business Model - The Business Model Wheel that I use to teach at Babson College has 14 elements, each with a series of key questions that you as the entrepreneur should be able to answer. You should be able to tell a story that walks through and describes the business model without the help of slides. In short, you should be able to describe the problem/solution fit, the solution/market fit, the solution/competitive and industry fit, and the solution/financial strategy fit. If you have done a good job understanding the elements and fit you should also be aware of the risks and how you plan to mitigate them.
Build an Integrated Pro Forma set of financials - It is not enough to simply have the obligatory Income Statement. In order to build an integrated set of pro forma financial statements that will stand up to the the scrutiny of investors, you will have had to do a great job testing your Business Model hypothesis and use what you have learned during that process to make assumptions that are based on your findings. Testing the most critical assumptions in your plan should allow you to run simulations resulting in a few different scenarios (e.g., Best Case, Likely Case, Worst Case). With regard to the Business Model and the Financial Strategy, the narrative is as important as the numbers.
Build a small team of great advisors - Really good well-respected advisors will not only give you good advice, but help make introductions to investors. This will help shorten the time it takes to get in front of investors. The rest is up to you.
Research the investor landscape - There is no excuse for not doing your due diligence on investors. There are plenty of resources available to research firms and the people within them. You’re looking for a partner, which is not a one way street. Be sure that you understand each firms investment thesis, sectors, geographic preference, preferred stage of investment, capital in the current fund, reputation. Build a simple pipeline report that you can use to keep track each investor and where are are in the process with them.
Get your house in order - Be ready for due diligence. Investors invest in teams first, so be sure that you have an up-to-date resume on file for each key team member and a reference list. Know that investors may call your references, and will call around your references. Be certain to let your references know that you are using them as a reference and give them a few talking points. They might never be called, but if they are you want them to be ready. Have copies of any existing contracts, legal documents (e.g., convertible note, leases), and IP filings at the ready along with research to support your business model and financial strategy. Put all of this in a secure digital file and track who has access.
Get everyone on the same page - Be sure that employees, advisors and current seed investors are current with regard to business strategy, performance, and plans for fund raising. You most definitely want to test out your story on your current investors and gain their commitment to the Series A financing. Consistent communications matters. Investors don’t like surprises, so get accustomed to updating them monthly with a standard email newsletter and speak/meet with them about your Series A plans before you hit the road.
There is plenty to think about here. My next post will focus on the pitch itself.