Series A – TechCrunch How to raise money

Editor’s note: Jenny Lefcourt is scheduled to be a guest on TechCrunch Live on August 31, 2022, along with Guillaume de Zwirek, CEO and founder of Well Health, to talk about the specific steps founders should take when raising a Series A. Event recordings will be available to watch live and at 12:00 p.m. PDT. It is free to attend. Register here. Replays will be available following the event and will be posted here.

I started with my first company 25 years ago and then raised over $100 million from top VCs with my second company 15 years ago. At that time, there was little capital floating around, and those numbers were considered very large. The bad news is that I overcapitalized my companies, but the good news is that the process taught me how VCs think and the best way to shape them. I have been an investor in Freestyle’s seed platform since 2014 and have had the opportunity to hone this skill, working closely with Series A rounds in our portfolio. The market is very demanding right now – founders, I hope the following guide will help many of you raise money in this challenging environment.

The key when starting out is to understand what VCs are looking for in a founder and business at every stage, and then you can make the call on the best way to approach them in a way that feels right for you.

There is a significant difference between raising a seed and a Series A round: A seed is often raised only on the big vision of a founder, while a Series A requires a big vision and commercialization, especially in the current market. Listed below are general best practices, followed by specific advice on setting up a Series A story arc.

Collecting art for any platform

• A matter of thought! Enter a meeting with Spirit to have an intellectual conversation about your business and being in hard-core “sales” mode. VCs prefer to work with founders who can discuss their business carefully. Be curious, confident and ready to argue – and resist defensiveness at all costs. Here I discuss more about the mindset, learn to love fundraising.
• Trust is a table stake. Saying that you don’t know the answer to a question builds respect and trust, but avoiding the question destroys it. One of the easiest ways to lose an investor’s interest in the first meeting is to make the VC feel that you are not direct. You are not expected to know all the answers – you are expected to speak straight.
• VCs have short attention spans! You have to make them interested in the first 5-10 minutes to get their attention for the rest. See more in “Part 1”.
• The goal of Meeting #1 is to get Meeting #2. Your goal is not to tell them everything or to preemptively answer every question they ask. So keep your story high and interesting – don’t throw away information or wash them too early in the details.
• Tell a good story in terms of “Now Slides”. That’s why I recommend founders spend time crafting their story arc, then creating slides to support that story. Make your main points clear and support them with information or color that helps them believe the points. Don’t make VCs listen to too many conversations and shower them with lots of data hoping they’ll connect the dots. Subtlety doesn’t win here.
• Be prepared for questions. Have an appendix that covers any question you may have or goes deeper into the business. VCs love it when they ask a question and the founder pulls up a slide that looks directly at them. The VCs will get the information they need, and you’ll show them that you’re a thoughtful founder they’d love to work with!
• Take control of time. Know how much time you have and check your main points. Don’t let it get to minute 30 and you’re still down the rabbit hole on a non-critical part of the business.

The Art of Series A Fundraising

By the time your first Series A round is over, ideally, the VC is excited about the opportunity, impressed with you, knows enough to believe you’re on a promising path, and is still thinking about you and your business after the meeting. Founders typically have 30 minutes (usually more than the pitch) to make this happen.

I recommend thinking about your tone in three “parts.”

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

• group.
• Vision. The big vision of the company – not only what they do today.
• Market. Educate VCs about your market, including market size and macro trends. VCs understand that it’s a huge market and ask, “Why now?” Question.
• Problem / opportunity. Be clear about who your customer is and what problem you are solving. Sometimes it’s less the “problem” you’re solving and more the new opportunity that’s present in light of a shift in the market.
• A solution to the problem/opportunity in question (what your company actually does!).
• The first sign of success. The title of this slide is “And it’s working!” Here’s a visual you can imagine. This could be a graph of a key metric like revenue or users moving up and to the right, multiple logos of previously registered companies, or other goodness. The goal here is to keep them motivated and eager to learn more.

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

Part 2: The goal here is to teach you how you’ve risked the business so far and how you’ve delivered on the demand for product and growth. This section typically contains some or all of the following:

• Where did you start? Note: All beginners have to start somewhere. You have already told them what the big vision is. Now they want to tell you where you started (and why) and how it’s going. Just be careful not to go into too much detail.
• Your customers. Who they are and what your value proposition is to them.
• Go to the market. Explain how you target/find customers.
• Dragging so far. You want to be clear about the key levers/metrics that drive your business and share information on how those have improved. You don’t need to cover all the parameters and details – you can cover them in the appendix. Here’s a laundry list of possible traction metrics: new customers/total customers, retention/churn, engagement, sales funnel conversion, sales pipeline, average sales price, revenue, gross margins, CAC return, LTV:CAC ratio…
• Department of Economics.
• Product love. Ideally, you’ll share engagement statistics or something that shows people are not only buying/using your product, but liking it, and when relevant. Options here include engagement statistics, virality, spending more time or money with your business over time, putting more of their work on your platform, etc. Along with the information, a few testimonials may also help.
• Another slide that is critical to your company’s success.
• A competitive landscape. This is not a feature comparison, but a market map to educate players on. Many use a 2×2 map to show who is in the market based on two attributes where your company sits alone in the upper right quadrant. This may seem counterintuitive, but you want big, important players on this map because you want your reward to be a win. Example from the show:

Section 3: The goal here is to tell a straightforward story of where you’re headed from here and how the business will get bigger. This section typically contains some or all of the following:

• Product and/or strategic/geo rollout roadmap. Outline your plans and explain why you believe this is the best way forward.
• 3-year financial projections (maybe here, maybe an attachment).
• Important points you will hit in this round. Note: Most VCs don’t care more about how you spend the capital than you do with capital (Note: Use of revenue can be a good appendix slide. When raising your next round, VCs want your business to be more valuable. Possible milestones include revenue, number of users, product/technology developed , the number of markets you are present in and key partnerships…

Appendix: The goal here is to answer any questions you may have or go deeper into your business. As you get more questions, add more appendix slides! When asked for more information on a topic, I recommend pulling a specific slide. Some possible attachment slides include:

• Sales productivity
• Sales pipeline
• Dive deeper into existing customers
• Acquisition and return time per channel
• The deep fall of the market
• Group analysis
• Net Promoter Score (NPS) or Sean Ellis Test
• Product road map
• Geography release plans
• Organization structure and team + key employees

Without a doubt, fundraising can be difficult and exhausting. However, I encourage you to recognize some of the positive aspects of fundraising…the clarity you gain about your business as you prepare to pitch, the wisdom you gain from your many meetings, and something we haven’t discussed much, the clients you can meet when you get them. Interested VCs will introduce you to their portfolio companies. Finally, remember, you only need one VC to say yes!

Two additional facilities:

If you haven’t raised your seed yet, you might find this interesting to watch (especially for female founders). Jess Lee @ Sequoia and I seeded a VC pitch for AllRise’s first female founder office hours.

High-profile pitch agency, 4th & King, and I held a session with the founders of Freestyle Portfolio on their Series A fundraise, which you can watch here.