The following is based on a sort of “internal guide” that I frequently share with portfolio companies I am involved with. It is a collection of various sources of information and best practices that should help the founders to prepare for their Series A fundraising.
It is most applicable to companies and their (first time) founders in Europe that have previously raised some (small) seed money from Angels or Micro VC funds such as ourselves, Point Nine Capital. That said, it contains various general notes that could help you in any fundraising situation.
Please note that it describes the ideal scenario which hardly any company reaches, so you might deviate from it in one or more points. As usual, the exception proves the rule.
The post is structured in three parts:
- Preliminary remarks regarding prerequisites (to raising a Series A)
- Input and inspiration for fundraising material
- Description of how the (ideal) fundraising process could look like
1. Make sure you are on track to generate 80 – 100K EUR/USD per month in net revenue by the time you go out on the market to start raising your A round. Certainly, do not start fundraising before hitting 1M EUR/USD in annual (net) revenue run rate.
In case you are not (yet) monetizing your product, lack of revenues might be compensated by exponential growth of active users which, usually, can only be achieved by some sort of virality (likely the case when Zenly snatched up over 22m USD from Benchmark Capital or, when Brainly raised its 9M USD Series A). Note that all following points are geared towards revenue generating companies.
2. Ideally, you are on track to grow 3x YoY (on a year-to-date and/or month-over-month basis, for instance, March 2017 is approximately 3x March 2016) on the most relevant KPIs like GMV, net revenue and/or bookings (also see this simple “compound growth calculator” template). Don’t forget, this translates into an average growth of approximately +10% month-over-month for 12 consecutive months!
3. As a rule of thumb, the faster and the more consistent (read: predictable) you grow, the higher the “multiple” on your monthly (net) revenues and/or yearly revenue run rate (as well as GMV for any marketplace business) and thus the higher your potential (pre-money) valuation for your Series A.
4. The basis for #1 to #3 above should be, of course, healthy unit economics (CACs vs. CLTV or CAC vs. net revenue per booking). Investors won’t honor unsustainable, expensive revenue growth.
5. Make sure to nail the explanation of market size. Define the total addressable market as well as the opportunity and find as much backup information (official, up to date research papers etc.) about it and do your own well-founded bottom up calculation to be able to support your reasoning (in your pitch deck; more on that below).
6. Have a financial plan ready on a monthly basis for the next 18–24 months that defines how much money you need for what. It should also include monthly actuals (which are even more important to investors than the outlook).
You can use your existing KPI dashboard and also use it to forecast the next 24 months (forecasting cost, your burn rate, is especially important). There are various templates for KPI dashboards for different business models. There’s a comprehensive KPI dashboard for SaaS and for marketplace businesses from yours truly or this marketplace KPI dashboard template from our friends over at VersionOne (great job Angela Tran Kingyens!) as well as this version from Willy of French Daphni.
1. Use this comprehensive list of European Investors from Techstars to compile a shortlist of approximately 50 suitable investors.
Rank the investors based on “quality” and perceived “fit” to your case as follows (and yes, you should get familiar with what the different investors are up to):
A = Dream Partner*
B = Nice but not the best fit
C = Could serve as a back up and/or to fill up a round (e.g. when they do smaller tickets, cannot be a lead etc.)
* Dream Partner does not necessarily mean the investor who pays the highest price; the optimal outcome is to maximize and balance several variables at a time: 1) the price an investor is willing to pay, 2) the qualityand brand of said investor (what can she or he bring to the table other than the $$$?) and 3) the time it takes to get firm commitments and close the round.
3. “Priority”, as mentioned in the shortlist template (#2), means in which chronological order you approach the investors. You want to make sure that the amount of outstanding feedback is never higher than 10–20 because:
a) anything above that is hard to handle;
b) you won’t be able to provide a good experience to your prospective investors;
c) you do not want to blindly fire a “shotgun shot” into the dark and leave the impression that you approached ANY possible investors out there – remember that fundraising is like dating, potential investors want to feel “special”;
d) you shouldn’t approach your “dream partners” at first because you want to gather feedback from “B candidates” before approaching potential “A candidates”. That way, you can still work on your pitch to refine the presentation and storyline if necessary (…and I’m very well aware of the fact that this advice is not going to make me very popular among later stage VCs). 😉
1. For the pitch deck preparation: Nail the story and content of the slides first, then take care of design afterwards.
In case your own design-skills are limited (like mine), ask a professional designer to polish the slides: Either someone internal (your own in-house designer) or use a service like SketchDeck, The Presentation Designer or Unicornpitch.
Important: Never (!) outsource the preparation of the pitch itself, this is purely meant for design purposes only.
2. Our dearest Michael Wolfe, Portfolio Advisor at Point Nine and co-founder of our portfolio company Gladly, dedicated an entire medium post on “What should be in my fundraising slides? The art of the startup pitch”.
3. Scott Sage recently published a handy guide to preparing a fundraising deck in “Fundraising? Why you shouldn’t just copy Sequoia’s Pitch Deck Template”.
4. The founder of Crew wrote a detailed guide on storytelling and shared the company’s pitch deck in his article titled “How we built our investor presentation and raised $2 million”.
5. A while ago, Nico shared a simple but efficient pitch deck template.
6. Of course, Jean also has one.
8. Here is a useful collection of various early stage pitch decks from successful tech companies such as AirBnB, Intercom or WeWork.
10. This might be an obvious one, but try to engage with fellow entrepreneurs that went through the same process and operate a similar business model. If you run a B2B SaaS startup, try to get a glimpse at the deck of another B2B SaaS company that has successfully raised their Series A already.
It’s obviously easier if you have access through a common investor that you share. Members of the Point Nine Family frequently share their decks in order to push each other forward and learn from one another.
If you can tick off all of the above points, this is the process:
1. Prepare a draft of your fundraising deck with no more than 20 slides; the fewer slides, the better! Unnecessary to mention that it is highly advised to use a cloud-solution like Google Slides, Prezi, Bunkr, HaikuDeck or Canva to facilitate collaboration, annotations and sharing.
2. Together with your existing investors, board members, advisors and mentors, do as many sessions as necessary to refine the deck and equity story. Do a “dry run” of the pitch in front of them and let them play the devil’s advocate. Take their feedback seriously.
3. Prepare a draft shortlist of (max. 50) potential Series A investors that you would like to approach. Again, consider using a solution like Google Spreadsheets for easier collaboration as several different people will continuously contribute to it.
4. Together with all relevant stakeholders (investors, advisors, key employees etc.) do a session to define who is approaching which potential new investor from the shortlist. Try to reference your preferred partners through common connections from their existing portfolio companies, etc.
5. Formulate a short, introductory “teaser” text to be copied & pasted into an email to forward your deck to the shortlisted, prospective investors. Remember the concept of “double opt in” for introduction requests.
Consider using a service like docsend, pitchXO or attach.io for sharing the deck. It allows you to keep the pitch deck always updated, even if already shared, keeps you in control over who can see it, does not clutter the recipient’s inbox, and you get valuable viewer-analytics on every slide, which can help you to improve the deck “on the fly”.
6. Avoid common pitfalls when approaching investors described in this – not too serious – presentation about “The VC Game”.
7. Once introduced to a prospective investor, you proceed with a first call or meeting to walk her or him through the deck.
8. First Round recently shared their extensive experience from raising $18bn in follow-on funding for their portfolio companies. It’s a long read, but more than worth it and it contains valuable advice on how to run a fundraising process end-to-end.
9. Last but not least, do not forget to factor in sufficient time to close your financing round. Make sure to not stand with your back against the wall by the time you expect first offers. Start the process early enough (at least five to six months) before running out of money.
Following the above steps shall put you in an ideal position and maximize the outcome of your Series A fundraising process, while minimizing the fundraising effort itself.
After all, the main purpose of launching your startup is not to continuously raise VC money and entertain prospective investors, but to eventually build a large, self-sustainable, profitable business that generates money.
Venture Capital is just a means to an end and should never be the main reason for creating a company.