Raising Series A and beyond
October 29, 2021
Raising Series A funding is arguably the most critical funding round for founders throughout their entire fundraising journey. A lot has changed in the fundraising landscape over the last 12-18 months, especially due to the COVID pandemic. However, there are still plenty of opportunities out there for securing investment.
To find out how, we talked to Ilan Goudsmit, Investment Manager at Endeit Capital and one of the most renowned investors in the Netherlands, alongside René Janssen, Founder and Managing Director at Lepaya. The pair share some of the most valuable lessons they’ve learned in raising series A funding and beyond, in a bid to give founders some key insights in doing the same.
Here are some of the key learnings all founders should know when it comes to raising Series A funding.
Always be honest and transparent
“For me, I think one of the most important things founders should be is honest and transparent,” says IIan. “If an investor gets a weird feeling that they didn't deliver on the promises and didn't learn from why they made those promises or why they didn't hit those targets, that can be like an ‘orange flag’ - let's put it that way.”
Any attempt by a founder to mislead investors by fudging information to make things sound better will almost certainly always get found out.
“That's a red flag,” adds IIan. “It’s a massive no-go. Be upfront and transparent in your communication.
Beware of the risks involved in mega rounds
The amounts of money you see in mega rounds are exceptional, with some astronomical valuations, but there are risks involved in succeeding and providing a successful exit to investors.
According to IIan, for some specific companies the risk is that they don’t realise their projections, and then they get a high valuation and try to refinance, so it could be a down round, which sees you getting a difficult territory. He also states that it’s becoming less accessible for companies that are second or third tier, because all the money is directed towards the ‘premium’ companies, and therefore, the perceived chance of them to succeed - and get a number one position in the market - diminishes.
“The risk is not so much for that company but for the number two or number three player in the market that doesn't get those heavy funding rounds - they might get in a squeeze, and that could be more troubling for them,” he says.
Try to solve all the problems you encounter
As a founder, be sure to give a practised stance in solving the problems you encounter, says IIan, especially if you didn't hit your goals.
“We sometimes monitor companies for two years before we invest in them, perhaps because they're not at the right stage,” he explains. “Normally they don't hit their plans, and that's gonna happen - we're fine with it. But as long as they understand why, and know what they’re going to do to hit it next time, at least we're getting to know them early and understand how they operate with their company.”
If an investor doesn't feel like you’re in charge of your company and don't really know what's going on in the market or how you should steer the company, then it’s likely you’re not going to retain their interest.
Prove your passion
What really makes you excited to investors is showing the passion you have for your customers and the problems you're solving, says Ilan. And that you're really on top of the big picture of the company and zooming into the details as well.
“If we ask you to write down the certain criteria and scaling systems, where every competitor is and what their roadmap looks like over the next 12 months, and if you can do it in a split second, then we’ll know you’re in control, you know the big picture and all the details about your company,” he explains. “That’s what gets us really excited.”
Don’t put everything on the table right away
Treat meeting an investor like going on a first date: don't put all your great stuff on the table straight away, says Rene.
“You're not gonna lie, but present yourself in an optimal light by figuring out what the key things are that an investor wants to know, and present that,” he advises. “Sometimes oversharing or being very detailed isn’t helpful, it should be much more about where's the industry going, what problem you are solving, how the investor fits into that, and what's our financial protection model.”
The “nitty-gritty” as he calls it, such as what’s not yet optimised or the challenging parts of your company, should be saved for a later stage. “Really figure out your initial story, trial it and clean that up.”
Be in control of the process
One of the most important things a founder should do is to ensure you’re the one managing the process.
“If you want to manage, you should be in control of the process and not let other people determine the agenda,” says Rene, adding that you should build in stage gates.
“There’s no real incentive for an investor to say that they're not going to invest in you, because they're ideally going to wait for a couple of months, see more proof points, get more data and so on,” he explains.
“And if you want to measure the sales process you either want to go or ‘no go’ at some point, at different stages, so I think it's very important for you to stay to create urgency but also to get ‘nos’ - because you do need to get many ‘nos’, to get that one ‘yes’.
“You want to invest your time and focus on the few firms and a few answers that are likely to convert.”
Don’t limit your options
According to René, founders should always be optimistic in their approach to investors, whether that’s someone you’re uncertain about or someone you don’t think you have a chance of securing funding from.
“It’s always worth testing the waters,” he says. “Even if it’s an investor not at the top of your bill, practice your pitch, ask for feedback and incorporate it, that's a very important bit of advice.”
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