How to Prepare for Series A

This is the last post in my current series of reader questions. It’s been a fun month of answering your questions.

Today’s question is: “What do technology companies need to do to prepare for Series A and beyond?”

This question is more than we can tackle in a single blog post, so I’m planning to devote much of the next month of November to investor readiness. I’ll use this post to outline some of the topics we’ll be covering, and then we’ll dig in in detail as we move forward.

My perspective on this issue is primarily one of being on the venture side of the table, which I’ve been doing for about a year now. I’ve still got a lot to learn, but I can tell you what we look for. There is no “right answer” to how you prepare for raising money. Every investor is looking for different things, and evaluates deals differently based on risk profile of the fund, investment thesis, and myriad other factors.

By the time you get to a Series A funding round, here’s a general set of expectations:

  • You know authoritatively who your customer is, and what you’re selling to them, as well as market size and how you’ll compete and win
  • You’ve got working, sane financial models that are fully fleshed out
  • The team that’s going to scale the business is in place or is at the very least identified and ready to be brought in with funding
  • You’ve got enough of a track record that investors can extrapolate past performance into the future
  • There are no “gotchas” hidden under the covers, such as pending legal issues, etc.
  • You know (with some degree of surety) how you’re going to use the funds
  • You’ve done the work to arrive at a valuation that is justifiable in the market, and you can articulate clearly your reasoning for the terms you’re seeking
  • You’ve got a clear path to break even and / or cash flow neutral, or you’ve identified clear milestones by which you’d go raise more money
  • You’ve got clear chain of ownership on all intellectual property, and it’s all assigned to the business

I also thought it’d be worthwhile to share a few immediate red flags for investors:

  • You don’t have command of the numbers in the business. This is probably the #1 killer of interest from investors. The company leaders have to be able to tell the story of how money and customers move through the business. Things like:
    • CAC / LTV
    • Funnel statistics
    • Contract length
    • Retention and Churn (dollars and customers / users)
    • Profit margin per product
    • Time to close deals
  • You don’t have a clear sense of where you’re weak and where you’ll need the most help. Good investors want to help, and they also want to invest with people who know what they’re good at and where they’re weak. No one’s good at everything.
  • You don’t know who your competition is and how you’re different / going to win. The answer of “we don’t have anyone who’s doing what we’re doing” is almost always wrong

As we go through the next month, we’ll explore each of these topics in detail, along with a few others, to help get you ready for your upcoming conversations with investors.

What did I miss on either of these lists? Hit me up.