Series A: How To Prepare For A Big Investment

Original author: Josh Kopelman
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We have already talked about what the founders can do in order not to get into trouble by working to attract the first round of investment. A fresh look at investment and a sober assessment of one’s capabilities are essential elements of success.

Another trend that can be noted is the greater volume of investments that startups are trying to get. It is clear that the market is not able to adapt to such conditions. Nevertheless, we see how companies continue to attract investments worth $ 15-20 million in the first round, only a few months after receiving the seed investment. To invest $ 15 million, an investor must be sure "3 times stronger" than when investing 5 million.

The desire to raise more than $ 15 million in round A arises for several reasons. Founders usually look at the data and believe that new standards have been introduced. For example, some founder sees that his friend received a large sum, reads about large-scale rounds and thinks that his company can as well. This, of course, is possible, but this rarely happens.

In addition, I often hear late-stage investors giving bad advice to early-stage founders. Let's say the founder holds a meeting with investors on Sand Hill Road and mentions investing a fairly large amount. If the investor is not surprised at this, the founder begins to think that this is quite real, even when in fact it is not.

A simple tip: increasing the size of investments in the first round is easier than decreasing.

The most successful founders of those that I have met wait before attracting investment. They wait to demonstrate their achievements and provide evidence of the development of their company, and after that they ask for a small amount.

You don’t want to get into a situation when you call the venture company and say: “Listen, I remember that I asked for 15 million dollars a month ago, but after talking with some people I decided to ask for 6 million.” Any investor will understand what this means and will begin to doubt you and your company. It’s much easier to call and say: “I asked from 6 to 8 million, but it seems that we can attract 12 million, given the high interest of the investor.”

I don’t remember all the stories that I was told about the unsuccessful fundraising, when the founders began to attract investments too early and in too large volumes. This is a kind of phenomenon in this area, but the founders began to think differently just now.



So what do the founders end up with?


The good news is that companies can avoid such problems. There are many opportunities to take advantage of the current trend and take advantage of it.

For example, some far-sighted founders with whom I work take advantage of the sharp increase in seed financing and attract large amounts at an early stage, winning more time to do more and achieve the highest possible results. If you are a very promising beginner, try to get as much investment as possible in principle.

When you attract seed investments, everyone looks at the attractiveness of your idea. As I like to say, nothing will help to make a beautiful story, except for numbers. This is exactly what happens in the first round.

They immediately begin to judge you according to your data, which you had to collect all this time in order to demonstrate your success, growth and potential. So why not attract 2.5 million seed investments instead of 1.5 million and give yourself the chance to maximize your performance? It should be expected 18-24 months after the sowing round. It is best to attract follow-up capital when you do not need it, and 2 extra years in stock is the best option in this situation.

Another advantage when raising seed investments in the current environment is a large selection of investors to turn to. There is an opportunity to carefully approach the selection of a suitable investor.

My advice: Conduct your research and look at the account of which companies and individuals there are already successful startups that they have helped hard. Despite the fact that there are superangels that provide invaluable support, you can come across those who are actually neither "super" and far from "angel".

Instead of arranging an “entertainment round” with the logos of venture capital companies, it seems to me that it would be better for the founders to choose investors who will roll up their sleeves and provide the necessary conditions, introduce you to the right people, help find and recruit talented specialists, analyze your Round A and support you to achieve your goals. And make sure your investor is ready to truly work with you. A company issuing checks of 250 thousand and 25 million each will not be able to offer the same services and support.

Once you have received your money, you need to stop and sort everything out. It always amazes me when a startup team cannot clearly distribute its expenses. It is always necessary to clearly understand what achievements and indicators you will demonstrate by investors in Round A. And all these data should reflect a significant increase in market value and a decrease in risks.



Spending a million dollars is much easier than you think


Reducing monthly costs before a product meets market conditions will give you more chances to create a large company. So, many companies say: “Well, we have enough money for 12 months. Let's launch the product in 11 months. ” This is a bad option.

If it takes you 11 months to create a product, even if you think that you will start delivering it on time (which is rare), you will be left with nothing else before you know how it feels to collect market data. Nothing will increase your chances of success in the first round more than launching a product that the consumer really likes.

A successful launch can be determined after several months. Suppose your company operates in the field of e-commerce, and you understand that the Christmas holidays will bring you 40% of your current income. You will not want to get into a situation where you have to look for investments in November. You need to make sure that you have enough money on hand in order to seek financing in February after the completion of the intermediate stage.

Such tipping points change from year to year, so find out what money is being invested into. For example, a year ago in the world of computer technology, one million dollars in Kickstarter presales with a great product idea was enough to get an investment in the first round. Today, investors are demanding millions of dollars in pre-sales with a product that either works or is already at the production stage, given the risk of equipment being delivered to the market.

As for the terms, it should be remembered that a successful fundraising takes from 4 to 8 weeks. We add time for preparation and negotiations and as a result we get several months. Keep this in mind when drawing up a schedule and choosing the achievements that you will talk about. Just in case, you should give yourself more time.

Also, keep in mind that tracking data is not enough. Your speech should be prepared and rehearsed better than you might think. Despite the fact that this is not the most interesting occupation, and it can be easily avoided, your speech when attracting investments can decide your entire destiny. I met the founders who spent more time on making weekly payrolls than preparing their presentation. You need to consider your negotiations literally the most important part throughout the process.

Founders must be proficient


We recommend preparing to attract the first round of investment for at least 4 weeks. It even got to the point that we formed a team of First Round employees called “Negotiating Assistance,” and it helps the founders compose a compelling story to raise the funds they need.

All this sounds as if you should urgently begin to limit your budget. But it is not necessary to go to such an extreme. Do not limit yourself when you need to work and develop very quickly. If you attract more seed investments and regularly monitor your progress against the required indicators, you will find yourself in a favorable position.

Get the feedback you need from your assistants and other entrepreneurs about the metric that they think you will need to demonstrate. Recommendations should be given to those who have worked in this sector or who are familiar with your business model. If you use the SaaS model, contact specialists and investors who are familiar with this area. They need to understand the specific market indicators that interest potential investors.

In certain business models, you can increase capitalization by dynamically increasing the number of customers instead of using a specific monetization strategy. Development in all directions makes no sense when you need to convince investors.

Talk with other entrepreneurs who have already negotiated with them, or investors who are familiar with them, to find out what they usually ask and what they expect. Companies are dramatically different in what they want to see as entrepreneurs. The more you know, the easier you can adapt your strategy for each of the meetings.

Failure is not the worst thing that can happen to you. As Walt Disney once remarked: “All the troubles that have befallen me, all the failures and obstacles only made me stronger ... You may not feel it when it happens, then even a spit in your face may turn out to be the best thing that ever happened to you either happened. ”

Starting a company is not easy. It is very difficult to create a cool product, hire talented specialists and raise capital. Do not let the wave of seed investments mislead you that subsequent financing will not require any effort.

PS You can start preparing for attracting investments using the presentation template prepared by the IIDF experts [ Slideshare , Keynote , PPT ]:


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