From our vantage point, we see a lot of seed stage funding happening these days. Capital from accelerators, angels and seed funds like ours is giving a lot of companies a shot at building something.
The growth in seed stage funding has not been matched by a growth in series A capital availability. That means it’s tougher to raise series A. So we have a big effort starting at Real to make sure our companies have what it takes to be series A ready.
Defining Series A readiness
The definition starts for me with contrasting seed vs. Series A.
Seed funding decisions are based on some combination of:
– Strong founding team (including at least one strong product / tech person)
– Unique insight about a large market opportunity. That insight should be about a clear, identifiable problem and a market wave that can be leveraged (or created, though that is tougher)
– Clear, capital efficient initial milestone to fund against (building, launching and validating something)
Series A is about accelerating. This means that you have early proof of something that works. You have the beginnings of a sausage machine.
Breaking that down into specific check points that investors look for:
– Clear, unique, defensible insight about a large market opportunity
– This opportunity can be validated by the investor with industry players
– A first product has been launched, and validated in the market
– Clear signs of meaningful user / customer engagement. Product / market fit has been established
– Company has a comprehensive roadmap linking this first product to its overall vision
Go to Market:
– Company has identified a first engine of growth: A clear channel for acquiring and retaining users
– Company has initial data around cost of customer acquisition. Enough data to extrapolate to a Series A spend level
– Company has a documented go to market plan
– Complete founding team: Product vision, technology depth and go to market knowledge
– Key management team hires have been identified. Ideally you go into a raise with some specific candidates in mind that can be part of the funding story
– Team passes all the usual sniff tests: passion, domain knowledge, intensity, intellectual honesty, data driven, self aware, transparent, etc.
– Investors have deep confidence that this team can deploy the round and create value
– Company is data driven. Investors can see deep metrics. Founders know the numbers cold. The numbers don’t have to be great as long as they are headed in the right direction
– Founding team knows how to get in front of the right investors
– Clear strategy for the raise: Raising the right amount to achieve the right milestones
– Company is investor ready. Meaning:
- Key documents are in place: Executive Summary, Investor presentation, three year financial model
- Supporting documents are in place: marketing plan, product roadmap, industry / competitive overview
- Due diligence ready: all existing legal docs, employee confidentiality and IP assignment agreements, etc are organized and ready for review
– Company’s existing investors are participating in the round. OK if angels don’t. But if you have VCs on board at the seed stage, they had better be writing a series A cheque.
I’m probably missing some things. But if you check these boxes you are in great shape. Remember, in this market especially, investors have lots of choice and can afford to pick the best. The bar for raising series A capital is high.