Raising a Series A is much tougher than it was in the heyday of 2021, and investors are more scrutinising of companies looking to raise.
So how can founders get prepared to raise a Series A? And what do investors want to see?
Below, we wrap up a few key takeaways from our chat at Sifted Summit with Pauline Paquet: director of operations at Franco-German VC firm XAnge, Murvah Iqbal, co-CEO and cofounder of electric parcel delivery network Hived and Tim Chong, cofounder and CEO of credit card fintech Yonder.
Macro matters
Startups will always be at the mercy of market fluctuations, but that doesn’t mean that great businesses can’t get funded in a downturn. Tim’s consumer fintech startup raised a £62.5m Series A round in April 2023, which he said was a much bigger challenge than raising a seed round in 2021. The company then went on to raise a £23.4m round in September.
For the Series A, Yonder had to demonstrate to investors “really great growth, great growth margins, a path to profitability and a path to IPO,” said Tim. He advised founders to focus on what they want to build in the long term while keeping in mind that markets will always shift. “We get asked a lot: ‘How do we think about valuation?’ Valuation is an outcome of supply and demand in a market. If you’re a public company, you don’t have control over your valuation or market cap,” he said. “Funding is the fuel to achieve something, it isn’t the end goal,” he added. “Raising a Series A was tough, but it helped us build a more resilient business.”
Demonstrate product-market fit
A key difference to raising now compared to in 2021 is that investors really want to see a strong product-market fit — there’s no way around it. Assess as a company what metrics you want to use to demonstrate how you’ve secured it: whether it’s revenue, customer numbers or retention. “There is capital to deploy, so if you have really strong customer love, really strong metrics, you’ve proven solid product-market fit, investors will look at it and think, “this is an opportunity I don’t want to miss out on,” said Murvah.
Make sure your data room tells a story
You should think about your data room — a virtual storage space where startups give documents and data about their company — like a public market annual report, said Tim. If you look at any public market report, they’re not just saying, ‘hey investors, what do you want to see from us?’ They use the data to piece together a narrative about what the company could be in the future and what its numbers mean in context.
Tim went through 20 annual reports from fast-growing companies such as Klarna, Wise and Tesla to gather inspiration for his data room. He also asked himself: what is the investor story we want to tell here if we were a public company? And how do we make sure our data room reflects that? It meant that the company wasn’t asked for much more data from its investors, which can be time-consuming when fundraising.
Be direct with investors
Fundraising is really time-consuming, and a lot of investors will wait around and ask more questions instead of moving to invest fast. The key is to be direct with investors and ask them upfront, ‘is this something you could invest in?’ instead of getting three calls in with an investor, only to find that they don’t have much interest in investing.
Murvah typically asks in a first call with an investor: What are your FUDs (fears, uncertainties, doubts)? What makes you feel uncomfortable about this business? “Because then at least you know really early on if this investor is serious or not because you want to speak to as many investors as possible at the start,” she said.
Build trust with investors
The role of VCs is to invest in people, while also keeping an eye on important metrics like growth, MRR (monthly recurring revenue) and EBITDA. But getting investors on side is also about a less quantifiable metric: trust. Investors invest “based on the trust they have in the capacity of the founder to reach a big milestone, like becoming a unicorn,” said Pauline. How you gain this trust is by keeping the promises you make to investors, even for smaller milestones: for example, ‘I will reach X amount of MRR in six months.’
On the subject of… raising a Series A
1. This company couldn’t raise a Series A — so it pivoted.
2. What founders should know if they’re fundraising this autumn.
3. Are you fundraising right now? Here’s some advice for preventing burnout.
Read the orginal article: https://sifted.eu/articles/series-a-raise-founder-tips/
