How To Raise a Series A Round
An Important Lesson for both Startups and Investors To Learn
Why is this important for startups to learn how to do?
I want to tell you about how you too can raise a series A round for your startup and really begin to scale your business. There are 5 things you need to know.
Number 1: traction matters. Traction is the idea that you have users that is growing month to month. So traction is having users that love your product and getting more each month. A great startup, several which we've invested in at Angel Kings, grows typically between 5-10%, sometimes more per month. The difference between investing in startups on the private market and investing in publicly traded companies is that you have to expect that growth, or else why wouldn't you invest in the public market? You invest into private startups for that reason.
If you're about to raise money from a venture capitalist or a fun firm such as Angel Kings, be able to show serious traction, user metrics, growth, if you're a "free-mium" model, your daily active users, your monthly active users, etc. If you're a product and you're selling widgets, well how many widgets are you selling January compared to February and so on and so on, what's your growth?
Second is create a simple 5-page deck explaining where you were when you first started the company and where you're going. What's your mission? What's your philosophy and how are you going to get there? What I don't like to see, and I know I speak for many venture capitalists when I say this, is I don't want to see a long pitch deck. I don't want to see 50 slides. I want to see a 5 page deck of what you've built and where you're going.
And by the way, another great part of this deck is what your users have told you, the good and the bad. Don't just put this flowery picture perception that all of your users love your product. The reality is that's impossible. If you've grown a business 5-10% per month, month-to-month, it's impossible you've pleased everyone. In fact, that shouldn't be your goal. However, you need to show where you were, where you're going, and some user feedback to get the venture capitalists like myself some idea of why we should invest in a series A round.
Third thing is prove you're able to provide a big return. At this point as you get into series A round, then maybe potentially B, is that additional runway, meaning the amount of cash you have to last you a longer time, should at some point get to a liquidity event, an exit, right? How are you going to provide a big return to an investor?
There's a merger that could take place, so a bigger company might absorb you and you get potentially come equity in that company. Or, it could become a lifestyle business and that's not why you invest in startups, so if you're raising a series A round you should not be doing it for a lifestyle business. Or your startup could potentially fail which is obviously the worst return, it is no return. But whatever it is, I want you to provide a specific exit point and show other industry comps or companies and how they exited.
How are you going to provide a big return to an investor?
For example, we've invested in a company called inDinero, that's I-N-D-I-N-E-R-O it's run by a phonemically successful entrepreneur, her name is Jessica Mah, and the most obvious comp is Mint.com. inDinero is a financial subscription model platform, a software platform, where you can monitor your money, your spending, and your expenses every month, sort of like, imagine QuickBooks but for analytics. When we were looking at investing in inDinero we needed some comps, and the most obvious comp was Mint, which was later acquired by Intuit. However, the point is this. We needed to see and have some market comps to know how big inDinero could be.
By the way, I think inDinero, on the record, will become a billion dollar company. We'll have a lot longer a runway in terms of how big it'll grow compared to Mint. I think it'll be 4 or 5, potentially 10x's bigger than Mint.com which sold way too quick. But look, I needed a comp, they provided that.
Fourth thing is, give a reasonable timeline for your startup runway. Look, a series A round could potentially be between 1 to about 10 million dollars. That's the range, and you rarely see it much, much bigger than that. Sometimes in cyber security investments, sometimes in serious biotech rounds that it might be bigger than that, but that's an average. If you're going to get an injection between 1 to 10 million dollars in a series A round, you need to ask, "How long will that last you? How long will that additional capital infusion last you until your exit? Until that liquidity event?"
I want to see, as a venture capitalist, your timeline. If we inject 10 million dollars, how many more years does that give you to get your exit point? Before you have to raise money you don't want to, some people argue you should be raising money constantly, I say raise money when absolutely necessary.
The fifth thing is, find VCs and investors who will give you enough space and enough room to build a product people love. We at Angel Kings are not micro managers. We invest in companies, we have phenomenal investors, that when we create these funds and investors who come from various backgrounds, and we make it clear that look, it is the responsibility of the startup, the CEOs, the founders, the COs, to build their own company. We're there to support them as mentors, as advisors, but we're not there to micro manage. If you're a startup raising a series A round, try to find people like us or another firm that provides you with enough space to build your own product. You're the expert, we're there to help you as your mentor, and guide you.
Here's the takeaway. Don't raise a series A unless you absolutely need it, you want to scale big, and you don't mind dealing with an outside board of directors. With an investment does come responsibility, typically within a series A round, and there's a board seat that is taken by or occupied by a series A round investor. Keep that in mind.