January 2, 2021
If your Seed-stage startup has regularly been hitting milestones, you’ve likely begun thinking about your Series A. This financing round varies in size, commonly from $3 million to $15 million.
Our guide is a distillation of everything we know about successfully raising an A. It includes insights learned from watching hundreds of founders succeed in raising, and in watching dozens fail.
Here’s what to expect in this Alpaca Unpacked playbook: what you need before raising a Series A, how to time it, organizing a strategy, creating your pitch deck, and tapping the right investors. This guide will not go into the closing of a Series A and the best practices for getting everyone aligned around the table (stay tuned for a future playbook on this).
Before launching into pitch decks and outreach emails, you need to assess whether you and your company are ready to raise a Series A. At this point, your company should be at a more mature stage and there will have been clear development since your seed round.
Here are two quotes from our Partners on what they look for in companies raising a Series A:
“A Series A investor is wondering, ‘Why is this business working, and if we pour gasoline on it, why is it going to scale the way we want?’ As a Seed company, you need good answers to this. You need to be in a position to convey product-market fit with real data — whether that is data on retention, LTV:CAC, returns, attrition, networking effects, sales cycles, whatever — and that data should be repeatedly and impressively growing over time. You need outstanding metrics; metrics that jump off the page and show that growth has been unlocked. There is no formula for this, because every business is different, but it’s the entrepreneur’s job to paint the vision that the business is a rocket ship and needs more fuel.” — Aubrie Pagano, GP at Alpaca
“In the same way that an investor prioritizes founder-market fit, a founder needs to prioritize investor-founder fit, meaning ‘who’ you are pitching is equally if not more important than what or how you are pitching. It’s imperative to put in the work and to do the research as to which firms, and specifically which partner, has a point of view on a particular product or sector. We capture much of this in a database, and provide it to our founders pre-raise.” — David Goldberg, GP at Alpaca
Together these elements should easily demonstrate product market fit to your would-be investors and signal that your business is ready for long-term success — provided you receive that necessary injection of capital.
A savvy business and a smart pitch won’t matter if the timing is off. You’ll need to give yourself ample time to put together all the pieces of the puzzle so you don’t find yourself scrambling before every VC meeting. For everything to come together without (major) stress, you’ll want to start the Series A process about 6 months out from zero cash date.
Start making your plans now and plot out what milestones need to happen in the months and weeks leading up to your pitch meetings. Part of that review should include establishing your company’s OKRs and discussing how and when you expect to achieve them.
As you work out those target dates, don’t forget to take note of seasonal elements that might impact your ability to successfully pitch. For instance, if the fund you want to court manages a larger portfolio, avoid building any pitch timeline where the partners might be on vacation — think summer holidays, Thanksgiving, Hanukkah or Christmas, and New Year’s. Similarly, avoid setting meetings at the end of a quarter or year — most investors will want to wait for the results of that quarter and if you miss the mark, that could spell the end of that conversation.
When identifying timing better suited for your pitch, consider your business’ seasonality and fundraising at the tail end of a strong period. For example, if you’re Airbnb, you might wait until right after the summer when rentals are at their peak and utilizing that fresh data in your pitch. You might also wait to fundraise until right before or after big milestones (e.g. you’ve made a key hire or released a new product) or whenever you’ve hit important, core metrics. Let that momentum work for you.
Now of course, much of the above is up in the air due to the pandemic, but what it comes down to is understanding that the timing of your pitch can make or break your Series A.
Once you’ve set your timeline and you’re ready for the journey ahead, it’s time to plan your strategy for the round. You’ll want to set expectations amongst your team and any current investors so that everyone is on the same page about what the funding market and environment are currently like. Here’s a great example of what a ‘Series A Strategy Kickoff Meeting Agenda’ should look like:
Understanding the status of the current funding environment will provide an important foundational context for the story you’ll tell during your pitch. It will dictate everything from the data you present to the way you craft your hook.
You’ll also want to have an open and honest conversation with your current investors about where you’re at during your prep. And while it might be tempting to focus only on your strengths (you’ll definitely want to highlight those in your pitch), don’t avoid the difficult discussion around pain points either. Your investors will provide both outside perspectives when it comes to your own story and insight into how other investors might view your company’s weaknesses. Taking note of these now gives you ample opportunity to work that information into the pitch or prepare a strong response to any inevitable questions. The last thing you want is to be surprised by a VC’s question mid-pitch.
With your strategy locked, you’re ready to craft your pitch deck. At this stage, investors will want to see more than just your passion for your business or particular industry. Instead, you’ll need to marry that passion with a strong story that demonstrates your business’ potential for scale or returns.
Now that doesn’t mean throwing every bit of data into your deck either. After all, most meetings (virtual or otherwise) will be 30 minutes and if you’re simply sending your deck via email, expect a VC to only spend three minutes reviewing the deck — that’s not a lot of time for someone to get hung up on the nitty-gritty numbers. So keep it tight and brief. If an investor is interested and really wants more information, you can always follow up later.
Your deck shouldn’t be more than 20 slides, which is less than two minutes per slide (so make sure those slides really count!). These initial slides should take your prospective investors on a journey, first capturing their attention with a hook, building to the conflict, and then presenting your resolution (aka your startup). This should happen within the first three to four slides so you have plenty of time to answer the whys and hows.
From here, you can build upon that story by answering the question “why now?” for your audience. This might be a brief look into historical trends or evolution within your category that makes your solution possible today. The goal is to convince investors that your category is evolving and that you’re ready to harness those trends right now.
Much of the back half of your deck should be dedicated to the facts of your business: the market size, competition, your business model, team, and financials. Again, here is really where you’ll want to be strategic about the information you choose to include. As discussed previously, don’t gloss over your weaknesses — weave them into the story and frame the perspective you want the VCs to walk away with. If you don’t call them out, the VCs in the room (or their associates after the fact) will.
Piece by piece, your slides should build upon each other and clearly explain why additional funds are needed. So review each slide with your team and investors and be critical — if a slide doesn’t move the reader that much closer to your ask or answer why now, remove or rewrite.
Once finalized, a tightly crafted deck filled with rich data and a strong story should easily argue that your startup is the strongest answer to the proposed problem. Readers should have no doubt in their minds that this is the case.
If you want even more guidance on putting together your deck, our friends at Emergence have shared a template that clearly lays out what the above looks like with helpful thought starters and slide design inspiration.
Now that you’ve built a strong deck (or you’re in the process of creating one), it’s time to figure out who you should pitch to. There are thousands of funds and investors out there who might be a good fit, so begin cutting down the seemingly endless options by eliminating those with competitive investments. This should be a quick and simple process. Next, pull your favorites out and put them into an initial list of prospective funds.
From the above, narrow down and tier your list based on each partner’s expertise and availability, and identify your strongest warm intro to them. (Your seed VCs are likely your best bet here.) For ease, consider dropping all these names and accompanying details into an investor tracking sheet like this one here. This will make it easy for you to identify who you should contact first, which conversations are active, and what next steps you need to take.
Simultaneously, gather your own personal contacts and ask for additional recommendations from others in your circle like fellow founders and your seed VCs. They’ll be your best source for referrals because they’ve all been there before and will be familiar enough with the landscape to provide a good match.
Once you’re ready to begin outreach, work through your contacts in bi-weekly batches and schedule conversations no more than two weeks out. You don’t want to give anyone the opportunity to cancel on you because they scheduled you before they actually knew what their week would be like.
And remember, most (if not all) of your pitches will be remote during the pandemic, so you may actually find that investors are more accessible than ever and that meetings will happen sooner than anticipated. This is exactly why you’ll want your deck to be locked before reaching out — if an investor is ready to meet quickly, you’ll need to be prepared.
With the above guidance, you should be more than prepared to raise your Series A. You might find that you need to suddenly adapt or put things temporarily on hold given the ever-changing situation with COVID-19, but the core elements of fundraising will always stay the same.
Need even more resources for your Series A? Check out the links below:
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Alpaca VC Investment Management LLC is a U.S. Securities and Exchange Commission-registered investment adviser. Alpaca VC Investment Management LLC is committed to diversity and inclusion in the workplace. We prohibit discrimination and harassment of any kind based on race, color, sex, religion, sexual orientation, national origin, disability, genetic information, pregnancy, or any other protected characteristic as outlined by federal, state, or local laws.