What is one piece of advice you’d give a fellow founder preparing to raise a Series A for the first time?
The following answers are provided by members of Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
1. Get Warm Introductions
Make sure you’re getting your network to warm up your introductions. It makes a world of difference. I think it’s really important to be systematic about identifying the firm that you’re interested in (by checking out their portfolio) and then finding the right partner at that firm. After, find a way to warm up to that partner. Good luck.
2. Be Pitch Perfect
While knowing your numbers inside and out (as well as proving your concept prior to pitching) is absolutely crucial, you must develop a pitch that “sells the shave not the razor.” This means a succinct, well-considered presentation that appeals to multiple personalities. Investing in professionals to design your powerpoint is also an excellent idea (i.e. copywriting, logo, branding, etc.)
3. Keep Those Google Alerts Coming
Market trends change almost every three days, and the equity that might not have been available for you last week might just materialize this week based on this fact. Do not be the founder who is unaware of new competitors (and their arson) duking it out for the same market—that’s perhaps the saddest way to go out. When you’re preparing to make your pitch, you can never be too informed!
4. Remember That It’s Not Only About Money
When we raised our first large round of capital, we wanted someone from the U.S. with deep connections and experience building e-commerce, global travel businesses and in particular emerging technology markets like the Middle East, Asia and Africa. We realized it’s not all about money when we were trying to secure as much capital as possible.
5. Choose Investors Wisely
Before raising a Series A, ask yourself if this is the right path for your company. Remember that money is a commodity and you can get it anywhere. When you sign your Series A, you are committing to investors for the long term. Make sure that you check references from previous investments they’ve made and ensure your objectives for the business are aligned.
6. Remember Metrics are More Important Than Vision
First, accept that raising a Series A round is going to be significantly harder than raising an angel round, no matter how easy (or hard) that was. Second, practice your pitch relentlessly and discuss strategy with other founders or friendly investors. Third, recognize that angel rounds are raised on vision while Series A rounds are raised on solid business fundamentals and metrics.
7. Understand the Legalese
The stakes are extremely high when you’re raising money, and so it’s important that you intimately understand everything that is on your term sheet and in the other legal documentation. While there might not be that much room for negotiation, you need to make an educated decision about the relationship you are signing up for. A lawyer can also help you understand what terms are typical or not.
8. Learn the Mechanics and Implications of the Term Sheet
The term sheet sets the precedent for following rounds. Many terms seem innocuous but it’s important to understand how they influence how voting works and how things will play out in an exit or down round. Brad Feld has a great book on term sheets, and there are great blogs out there that offer valuable information. I also did a lot of talking to other entrepreneurs about experiences they had in the past and tried to translate them into the various terms.
– Alex Fang, Aurrion
9. Analytically Build Confidence
Your investments are sound if your idea or product is cutting-edge, useful and fluid. Analytically building your own confidence in your business will minimize risks and exemplify your strengths and strategies.
10. Be Prepared for a Reality Check
Because it’s easier than ever to get seed money nowadays, that makes getting Series A funding harder. If the amount of Series A funding hasn’t increased industry-wide, but more companies are getting seed funding, then there’s more competition for smaller slices of the pie. Don’t be surprised when friendly interest turns into hard interrogations about your metrics and value.
11. Know Your Weaknesses
No company is perfect. In a seed stage, you can assume that many of the finer details of your company will simply be passed over. Don’t bank on that. Habitually create backup slides, and be your own harshest critic. Nothing is more attractive in a founder than self-awareness.
12. Get Your Books in Order
Nothing will torpedo a deal faster than poor accounting practices. You can do everything else right, but if your financials aren’t in shape, no reputable investor will want to put money into your company. Make sure you have a good accounting firm prepare your financials and taxes and that everything is up to date when it comes to tax payments.