Your startup just hit $1 million in annual recurring revenue. You’ve got product market fit. Now you’re ready for more capital to supercharge that growth — it’s time to raise a Series A round.
But how should you pitch investors? What are they looking for? What do they care about? What will it take to land the funding needed to become a billion-dollar company?
Phil Boyer, partner at Crosslink Capital, answered these questions and more as part of an event hosted by Flying Fish Partners called Road to Series A, a new virtual event series put on by the Seattle venture capital firm. Boyer spoke with Lisa Nelson, the former managing director of Microsoft’s venture fund M12 who is now a venture partner at Flying Fish. (Editor’s note: Flying Fish is hosting the event series in partnership with GeekWire)
Boyer joined Bay Area-based Crosslink after stints with RBC Capital and Credit Suisse. He focuses on early-stage investments across B2B software themes such as process automation and DevOps, as described in a recent blog post.
Here are tips from Boyer for founders that are looking to raise their Series A:
It’s about the team: Some founders assume that once they hit $1 million in ARR there’s a “magic thing that happens where you raise a Series A.” That’s not how it works, Boyer said.
Revenue can be a great data point, but he’s more interested in the leaders themselves and if they’re equipped to take the company from beta to a scalable business. Boyer seeks founders who have past experience that provided unique insights into the problem they are tackling. He also looks at the first few hires to get an idea of the founder’s vision and his or her self-awareness to be able to fill gaps.
“Did the founders have this really compelling vision and view of the future that attracts really interesting people who are also dropping everything to go join forces?” he noted.
It’s also about the market: In addition to the quality of the founding team, Boyer prioritizes the size and opportunity of a market ahead of any metrics. That can come through in various ways depending on the type of business. If it’s a deep infrastructure product for enterprise, for example, is the startup showing that it can land its first set of six-figure deals? If it’s a company targeting SMBs, is there a huge addressable amount of customers to sell to?
Boyer says: “It’s showing that you have enough early proof to get someone to say, ‘if these folks execute on the product roadmap and on professionalizing their sales and marketing team, I can see this company getting to $100 million in ARR within the markets they are going after.’
“The more you can prove against that thesis, the higher valuation and higher price you’re going to get in the Series A.”
Practice your pitch — and be honest: The easiest thing to do to get ahead and separate yourself from other startups is to refine your pitch and your story with friends, co-workers, advisors, family, etc. “It’s a very simple thing to do and it’s important,” Boyer said. “Investors are meeting with 10 other companies that day. You have to have signal through the noise.”
Be honest about your progress and your projections, Boyer added — investors are good at wading through the BS. And it will come back to bite you at some point in the process. “Be straightforward and have high integrity in what you’re showing investors,” he said.
On advisory boards: It can be a “strong weapon” for early-stage companies to have a group of advisors, Boyer said. But don’t just have one to have one — make sure the advisory board is made up of people that will actually add value. Boyer has seen some top-notch advisors who have daily touchpoints with a founding team. “That is absolutely worth it if you’re able to get that kind of insight for cutting an options deal with that person to add them on as an advisor,” he said.
Don’t discount less senior folks: You don’t need to speak to a managing director or general partner to get the attention of a VC firm. It’s totally fine to start a conversation with an associate — they are the ones often driving the due diligence process anyways, Boyer said. “I don’t think it’s smart to ignore an associate or push them aside as not important,” he said. “I think they’re crucial.”