How to Raise a Successful VC Round or Series A

How to Raise a Successful VC Round or Series A

Running a Great Series A Fundraising Process
A number of companies I started working with at the seed level are now hitting Series A fundraises.   I have been helping some of them think through the process and thought I would capture some of the key components of how to raise a Series A effectively.

How a Series A is different from a Seed Round.

• VC is an oligopoly market, Angel is a highly fragmented one. While there are literally hundreds of angels you can take money from, there are only a dozen or so venture firms that really matter. This changes the timing and approach to negotiation dramatically (See below).
• Everyone on the investor side is a professional.  #prostyle
  • While many angels you meet with may be doing it on the side or to “give back”, all VCs are doing this for a living. Their goal is to make money for their LPs, and they have been through this negotiation many many times. Use your existing investors and advisors well.
  • Terms are more complex. If you raised a convertible note, you had a 3-5 page document you negotiated. Venture rounds such as Series A are almost always equity rounds, and you will get into all sorts of issues that will really matter in the long run for the company including board structure and governance. Study up on these key terms, as they can make the difference between your being CEO in 5 years, or being kicked out of your company. See e.g. Sean Parker help Mark Zuckerberg navigate this for Facebook.

Tactics for running a Series A Process:
1. Line up all the meetings in a short period of time.  Many seed rounds these days lack a lead investor. This means from the first check you collect to the last, you may take a few months as you round up a number of individual investors.  In contrast, Series A/venture rounds have a very different dynamic as there are a limited number of firms to talk to, and there is only 1 person you will take money from.  Similarly, VCs talk to each other a lot.  You want to limit the time period over which information will leak and VCs have a chance to collude (see below).

You should schedule all your VC meetings in as short a time period as possible. This does a few things:

• Creates buzz. Suddenly, every VC is talking about your co at the same time.
• Creates an auction dynamic and perception of momentum. Everyone is talking about you at the same time, so it is very credible that you have alternative options. This means VCs will give on more terms.
• Prevents an early “no” from hurting you. The time frame is compressed enough that an early no won’t make it through all the ranks of the VC community fast enough to hurt you.
• Makes you more confident. If you talk to lots of people, a subset of them will want to have a follow up conversation. This increases your confidence which increases both your presentation skills and negotiation leverage.
• Prevents you from getting a term sheet too early in the process. One of the hardest dynamics to navigate is getting a term sheet from a VC before everyone else has a chance to talk with you. You end up with a dilemma – how do you keep momentum with the first investor high (in case they are your only good option) while still gauging interest from everyone else? Once a VC gives you a term sheet, they often expect a fast yes or no answer from you. Lining everyone up in a 2 week period for the first conversation helps bypass this risk to the fundraise as you will get a quick gauge of the market all at once.