Pitching In The Big Leagues: An Inside Look At Series A Fundraising
The Series A round has become a serious milestone for startups, new data shows how to get it done.
By Russ Heddleston, Co-Founder and CEO of DocSend
As a founder, you have many “firsts” to look forward to on your journey to entrepreneurial success — from finding the right partner to opening your first office space (be it a garage, WeWork or a less traditional virtual space) to securing your first paying customer.
On the fundraising side of things, there is no milestone more validating for a young company than securing your Series A financing. Less than half of seed-funded startups ever go on to raise a Series A round. Investors are well aware of what’s at stake in this stage of a startup’s development and expect to sign term sheets only for the cream of the crop.
Based on real-life investor and founder data from DocSend’s new report, “The Anatomy of a Series A Raise,” we’ve gleaned three takeaways to consider before you start your Series A fundraise.
The Future is Uncertain, Your Pitch Deck (and Profitability) Can’t be
On the off chance you need to be reminded, factors that can make or break your business are unpredictable, and 2020 has reminded us in no uncertain terms how quickly market opportunities, customer demands, and institutions can change irrevocably at a moment’s notice.
Where successful pitches in the Seed and earlier rounds require detailed Problem, Solution, Product, and Competition sections, Series A decks need to tell your company’s unique story to instill long-term confidence with both existing and new investors.
The Traction section, for example, takes on a whole new level of significance in successful Series A decks. Your deck can demonstrate traction via customer numbers, revenue, and future pipeline information. There’s also a distinct focus on repeatable traction with slides dedicated to customer retention, reviews, percentage of repeat customers and slides highlighting the details of the customer experience your company is providing. It’s not always necessary to have a slide for each kind of traction that you want to show, as this will bloat your deck and make it harder for investors to consume. When raising a Series A, it’s recommended to create a data room that can feature your main deck and support documents that can tell a more holistic story of how your company is doing.
Additionally, investors at this stage need to find assurance that you and your company have a track record of financial stewardship. In other words, your deck needs to show them their money is in good hands and you won’t blow their investment on a second office space in Tahiti (unless of course, the Tahitian talent pool happens to be the perfect fit for your company, then go for it).
Know What to Expect When a VC Opens your Deck (and their Checkbook)
As Series A companies are more mature than in previous rounds, Series A decks are longer at 25 slides. But VC reading time has actually decreased for this round, clocking in on average at three minutes and eleven seconds.
At this point in the fundraising process, VCs are more likely to be repeat investors and will be familiar with your overall business strategy. Somewhat counterintuitively, VCs tend to spend less time on successful decks (those they chose to fund) than they do unsuccessful ones.
If a VC decides to move forward with a term sheet, it’s important to note a few things that are unique to the Series A. On average, founders signed a 20% stake in their company to investors in this round in a process that often takes more than five weeks.
The Investors Pool will be Tight-Knit, Start Building Relationships Early
Nearly every founder in our research (88%) said their previous investors participated in their Series A round. With that in mind, it’s a good practice to start thinking about your Series A round well in advance — starting during or before your Seed raise.
If you have a good relationship, you can use future Series A investors to get feedback on your Seed deck. Not only will you build relationships for future fundraising, but you will also strengthen your Seed deck and improve your chances of making it to the Series A round.
Confidence is Everything
When approaching Series A investors, it’s your job as a founder to instill the same level of confidence in VCs as you have in your company. Most of the nitty-gritty vetting has already been performed in earlier rounds — Series A is all about selling your company story and communicating long-term profitability to investors.
To learn more about what it takes to secure funding, from Pre-Seed all the way to Series A, as well as other valuable resources for startup founders, check out the complete 2020 DocSend Startup Index.
