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Series A – How to Fund Technology Flow

Editor’s Note: Jenny Lefcourt is a Technology Flow Live guest on August 31, 2022, where she, along with Guillaume de Zwirek, CEO and co-founder of Well Health, will talk about the specific steps entrepreneurs should take when raising a Series A. Event recordings are live and available for viewing at 12:00 pm PDT. Attendance is free. Register here. Replays will be available after the event and will be posted here.

Starting with the first company I co-founded 25 years ago and continuing through the second company I co-founded 15 years ago, I have raised over $100 million from top VCs. At that time, little capital was floating around and the numbers were considered enormous. The bad news was that I overcapitalized my companies, but the good news was that the process taught me how VCs think and the best way to pitch them. Since 2014, I have been a seed-stage investor at Freestyle and have had the opportunity to hone this skill set by working with entrepreneurs in our portfolio in raising Series A rounds. The market is demanding right now — entrepreneurs, I hope the following guide will help many of you raise funds in this challenging environment.

Understanding what the entrepreneur and VCs are looking for in a business at each stage is key when raising, and then you can make the call on the best way to pitch them in a way that feels right to you.

There is a notable difference between raising a seed and a Series A round: a seed is often raised only with the founder’s big vision, while a Series A usually requires a big vision and business traction, especially in the current market. Below are general best practices for pitching, followed by specific advice on creating a Series A story arc.

Fundraising knowledge for any stage

  • Mindset is important! Enter the meeting in the spirit of having an intellectual conversation about your business while being in hard-core “sales” mode. VCs like to work with entrepreneurs who can thoughtfully discuss their business. Be curious, confident and open to discussion – and, at all costs, avoid being defensive. I discuss mindset more here, Learn to Love Fundraising.
  • Trust Table Shares. If you don’t know the answer to a question, saying so will gain respect and trust, avoiding the question will destroy it. One of the easiest ways to lose an investor’s interest at the first meeting is for the VC to think you’re not being direct. You’re not expected to know all the answers — you’re expected to be straight.
  • VCs care less! In the first 5-10 minutes of the meeting you need to get them interested to get their attention. See more in “Section 1” below.
  • The goal of meeting number 1 is to get meeting number 2. Your goal is not to tell them everything or preemptively answer any question they ask. So keep your story high-level and interesting — don’t dump data or jump into details too quickly.
  • Tell a good story versus “present slides.” That’s why I recommend entrepreneurs take the time to build their story arc and create slides to support that story. Make your main points very clear and support those points with data or color that helps make them believable. Don’t let VCs listen to too many talks and overwhelm them with too much data, hoping they’ll connect the dots. Subtlety does not win here.
  • Prepare for questions. Have a hearty appendix that covers any questions you get or dive deep into the business. VCs love it when they ask a question and the entrepreneur pulls up a slide that addresses it directly. VCs will get the information they’re looking for and you’ll show them you’re a thoughtful founder they’d love to work with!
  • Manage time. Know how much time you have and make sure your main key points are covered. Don’t let it get to 30 minutes and you’re still down the rabbit hole in a non-critical part of the business.

Series A Fundraising Knowledge

When your first Series A pitch is over, ideally, the VC is excited about the opportunity, impressed with you, knows enough to believe you’re on the right track, and thinks highly of you and your business after the meeting. Founders typically have 30 minutes (often via Zoom) to make this happen.

I recommend thinking about your pitch in three “sections.”

Section 1: The goal is to earn the right to their attention for the rest of the meeting! This may include some/all of the following:

  • the team
  • Vision. The big vision of the company – not what you do today.
  • Saint Educate VCs about your market, including market size and macro trends. VCs need to understand that this is a big market and ask, “Why now?” The reason should be understood. The question
  • Problem/Opportunity Be clear about who your customer is and what their problem is that you are solving. Sometimes it’s less about the “problem” you’re solving and more about the new opportunity that exists now, depending on changes in the market.
  • A solution to a stated problem/opportunity (exactly what your company does!).
  • The first sign of success. The title of this slide is “And it’s working!” Here’s a scene you can imagine. This could be a graph of a key metric like revenue or users moving up and to the right, logos of companies that have already signed up, or other goodness. The goal here is to keep them interested and excited to learn more.

After pitching this section, take a breather and check in with investors. Ask: “Any questions? Does this make sense?”

Section 2: The goal here is to show them how you’ve de-risked the business so far and provided traction on production and growth. This section usually includes some or all of the following:

  • Where did you start? Note: All startups have to start somewhere. You have already told them what the big vision is. Now you want to tell them where you started (and maybe why) and how it’s going. Be careful not to get bogged down in too much detail.
  • Your customers. Who are they and what is your value proposition for them?
  • Go to Santa. Explain how you target/acquire customers.
  • Traction so far. You want to be clear about the key levers/metrics that drive your business and share information on how they have evolved. You don’t have to cover all the metrics and details – you can cover that in an appendix. Here’s a laundry list of potential traction metrics: new customers/total customers, retention/churning, engagement, sales funnel conversions, sales pipeline, average sales price, revenue, gross margins, CAC payback, LTV:CAC ratio…
  • Unit Economics.
  • Love the product. Ideally, you’ll share engagement stats or something that shows people not only buy/use your product, but love it and it’s inevitable. Opportunities here include engagement stats, virality, spending more time or money with your business over time, getting more of their business on your platform, etc. A few testimonials along with the data would also help.
  • Any other slide that is critical to your company’s success.
  • Competitive landscape. This is not feature comparison, but market mapping to educate players. Many people use a 2×2 map to show who is in the market based on the two characteristics that stand alone in the upper-right quadrant of your company. It may sound counterintuitive, but you want big, important players on this map because you want to win your prize. Example from the scene:
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A screenshot from the pitch deck of the scene

Section 3: The goal here is to be clear about where you’re going from here and how the business is going to get bigger. This section usually includes some or all of the following:

  • Product and/or strategic/geo rollout roadmap. Cover your plans and explain why you believe this is the best course of action.
  • 3-year financial projections (probably here, as an appendix).
  • Milestones you will hit with this round. Note: Most VCs care less about what you “spend” the capital than what you achieve with the capital (note: using returns can be a good supplement slide). VCs want your business to be worth more by the time you raise your next round. Potential milestones include revenue, number of users, product/technology developed, number of markets you will be in and key partnerships…

Appendix: The goal here is to address any questions you may have or dive deeper into the topic of your business. As you get more questions, add more supplemental slides! I recommend pulling up a specific slide when asked for more information on a topic. Some potential appendix slides:

  • Sales productivity
  • Sales pipeline
  • Dive deep into existing customers
  • Period of purchase and repayment by channel
  • A deep breakdown of the market
  • Coherence analysis
  • Net Promoter Score (NPS) or Sean Ellis test
  • Product roadmap
  • Geographic expansion plans
  • Organization structure and team + key appointments

No doubt, fundraising can be frustrating and exhausting. However, I encourage you to identify some positive aspects of fundraising… the clarity you gain about your business as you prepare for the pitch, the knowledge you gain from your many meetings, and less discussed, the customers you can get when interested VCs introduce you to their portfolio companies. Finally, remember, you only need one VC to say yes!

Some additional resources:

If you haven’t raised your seed round yet, you might find this interesting to watch (especially for female entrepreneurs). Jess Lee @ Sequoia and I break out the VC pitch for seed for AllRice’s first female founder office hours.

Top-tier pitch agency, 4th & King, and I did a session on Series A fundraising with the founders of Freestyle Portfolio, which you can watch here.

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