Series A Fundraise Guide

Objective: what does this deck cover?

You’ve done your seed round. A year later the end of the runway isn’t far
away and it is time for another raise.

Though the mechanics of raising a Series A round are quite similar to a

seed round, there are some critical differences that you need to be
aware of.

The goal of this guide is to help you understand and navigate the
nuances of raising a Series A.

This is not meant to be an exhaustive guide of fundraising best practices

– we know you already know how to raise money successfully. Instead,
we want to make sure you understand how this raise is different and are
prepared to handle those differences.

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Table of Contents

1. Planning for the fundraise

2. Pitching investors
3. Setting up diligence
4. Negotiating deal terms
5. Post-closing considerations
1. Planning: Key questions to consider

Planning for a Series A is not different from a seed, but you need to be clear on what
the requirements are for the raise and your own needs.

a• Are you ready to raise a Series A? Should you raise a bridge instead?

b• When is the right time to kick-off the raise?

c• How much do you fundraise?

d• Who are you talking to? And how do you do investor due diligence?

e• What does the process look like?

f• Who should run point on the process?

 Planning 1a

Are you ready to raise a Series A? (I/II)

Seed Series A

Investors need to believe you are on the path to Investors need to believe you are ready to hit the
establishing strong product/market fit. gas and scale. Show demonstrated growth in key
metrics such as revenue, profit, and or users.
The focus is on business acceleration and not
This means having core elements in place:
proof of concept.
 Proof of a sizeable addressable market
 Clear articulation of value proposition
This means having proven out:
 Strong, well-suited team
 Product/market fit
 Attractive unit economics at scale
 Healthy unit economics and a strong
 Feasible strategy for acquiring customers understanding of CAC / LTV (this will be a
 Customer validation in market main driver of future rounds, so it’s important
 Concrete milestones for product/market fit that you’re tracking this)
 Team's ability to execute (critical roles should
Show strong understanding of market dynamics, be filled)
customer needs, and focus/prioritization.  Concrete milestones for growth (these must
be aligned to fundraising amount)
 Clear path to scale product
 Acquisition strategy

Otherwise, consider raising a smaller bridge

round instead to:
 Allow more runway to prove out your model
e.g. considering a pivot
 Meet imminent milestones that can lead to
higher valuation in the Series A and
ultimately less dilution e.g. launching a
new product, testing another market segment 5
 Planning 1a
Are you ready to raise a Series A? (II/II)
VilCap’s VIRAL framework is a good tool to help you think about what stage your company is
(do not panic – it is exhaustive, but treat it as a framework!)

To raise
a Series
A, you
must be
ready to
scale

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Source: VilCap VIRAL Framework
 Planning 1b
When is the right time to kick-off the raise?

Start planning early, at least 6 months before you need money. Series A rounds
generally feature institutional investors who may take longer and may be more
demanding than seed-stage investors. Meanwhile you will have a fast-growing, full-
blown business to run.
1,600K Series A Funds Revenue

1,400K When you should

have started gearing
1,200K
up for fundraising
1,000K
Where you
Seed Round
probably are
800K right now

600K
Angel
400K Round
200K

0K
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11
 Planning 1c
How much should you fundraise for your Series A?

Rule of thumb is to start by defining milestones and work backwards from there
to determine how much you should fundraise.

Common mistakes include:

• Raising too much: We understand the temptation of giving yourself a long runway
and not having to worry about fundraising. Aside from the obvious dilution
consideration, a long runway can at times remove the pressure to perform –
knowing there is an end can keep you and your teams motivated

• Raising too little: You want to give yourself enough times to reach the milestones
you need to reach an inflection point in the value of your business. Otherwise, you
risk an unsuccessful Series B raise and end up spending more time fundraising
than on your company.

• Not building buffer for the fundraise: You need to make sure you have enough
to bankroll your company during your next fundraise as well. Remember,
fundraises can take more time than expected, so make sure that account for this in
your budget; the last thing you want is to run out of cash before you close your
round.
* Some recommend raising enough for 18-24 months of runway, but this isn’t always the case.
 Planning 1d
How do you find investors? (I/III)

“Spray and pray” strategies do not work. Strive for

quality, not quantity:

• Use Google, LinkedIn, CrunchBase, AngelList,

GIIN, and other online resources to identify
investors who are a good fit
• Talk with other companies in the industry
• Know the pet theories of your shortlisted investors

Leverage your existing investors: they can

contribute to your Series A and introduce you to
other investors
• Ask for introductions. A personal intro is always
better than a cold call.
• If not, get the word out any way you can. Tell your
network. Go to events. Unlikely connections can
lead to investors.
• If you must cold call, make your email concise,
personal, and polite. Your goal with the cold call is
to get their attention, not their signature.

Source: Lessons from a Study of Perfect Pitch Decks, TechCrunch, June 2015.
 Planning 1d
How do you find investors? (II/III)
Make sure you understand the role of a lead investor:

• A lead investor sets the price and terms of the investment, takes a large part of the
round, and usually represents the round on the board

Identify potential lead investors:

1. Ask current investors and any follow investors. If they say no, understand why

2. Seek introductions to potential leads by current investors and any follow on

investors

3. Look for Series A investors who invest in round-relevant ranges

4. Target investors who know your market, geography and/or sector

5. Identify investors who typically lead

6. Find investors who add value and bring a strong reputation. Multiple investors can
help drive your negotiation power (though be cautious not to have too many that it
discourages others from investing)
 Planning 1d
How do you find investors? (III/III)
You should do your own set of investor diligence, which requires
knowing what to consider when evaluating a potential investor:

• What combination of investors do you want, i.e. strategic,

impact investors, angels, institutional? Local vs. global? Splitting a round between
multiple investors can enable
• Does the investor have a good track record? you to maximize the distinct,
• Do you have a good rapport with the individual championing non-monetary benefits of each
investor.
your deal? What about juniors at the fund (you’ll be interacting
with them in a day-to-day)?
• Do they invest in Series A rounds and beyond?
• Can they do follow-on investments?
• Do they still have room for investments?
• Do they invest in your geography / sector?
• How long is their investment process? (then add 3 months)
• Can they lead?
• Do they co-invest?
• What can they add besides money (PR, technical expertise,
network, market experience, etc…)?
 Planning 1e
How do you prepare for the Series A kickoff?

3 things a CEO should do before launching its Series A raise:

1. Engage investors:

• Balance low-touch vs. high-touch engagement methods

• Send a monthly “investor update” (a couple of bullets under “the good”, “the bad”, and
“the ugly” can do the trick!) to keep investors warm before kicking off your fundraise

2. Communicate (carefully) with your company about your fundraising plans:

• Discuss your Series A at a high-level, but don’t commit to specifics, such as timing,
pricing, or valuation.

• Give yourself enough wiggle room on the details, so you can navigate the unexpected.

5. Position your company to over-deliver on expectations:

• Establish key metrics and future milestones that are ambitious, but realistic

• Series A investors are looking to invest in growth, so don’t lose sight of the bigger picture -
you’ll only have a successful Series A if you position your company for long-term growth
and profitability
 Planning 1f
Who should run point on contact with investors?

You need to embrace the fact that fundraising is a core part of your job as the CEO

• The CEO is leader of the company and will drive the company’s success

• A CEO who can tell the story of the company well to investors will do the same with others
(employees, customers, partners, regulators)

• Raising can help change your thinking, adjust your positioning, or learn about other markets

• Investors are betting on you as a leader

There is minimal incremental value to getting bankers involved for seed/Series A raises

• Although bankers can be helpful to get you in front of people beyond your network, investors want to
deal with you and your team

• Series A is still incredibly early, and investors are ultimately betting on the team

• To get beyond your network, leverage your existing investors as much as possible. Chances are
they have existing relationships with most of the people you are trying to access.
2. Pitching: Key questions to consider

What you are pitching looks very different at the seed round and Series A. During a
seed round, you are pitching a vision. Series A investors are looking for more.

2a• What is the story you want to tell? e.g. vision, performance, team, use of funds, etc.

2b• How do you communicate sticky situations? e.g. investors not following on

2c• What materials do you need?

 Pitching 2a
What is the story you want to tell?
At the seed stage, pitching is about
selling a vision. Pitching in the Series A Seed Series A Series
requires more than just vision: B
• Progress: Need to be clear about
Vision
what the company has done to date
e.g. partnerships created, technology
development, etc. Performance/ Proof of
• Financial Performance: Emphasize Traction Concept
traction to date, especially relative to
key operational metrics such as Projections
customer acquisition costs, and post raise
positive unit economics (or that you Scale N/A
are on the path to it)
• Team: Critical roles should be filled, Competitive
but you should show your plan for differentiation
filling mid-level management
Exit Thesis
positions.
• Use of funds: Need to share clearly
defined milestones to scale up your Strong Medium Weak
business

Remember Series A investors need to believe that you are

ready to scale
 Pitching 2b

How do you communicate sticky situations?

When it comes to fundraising, everyone has questions and there may be some questions
where your positioning matters. Here is how to think about 3 common “sticky” situations:

Situation #1: Funders from previous rounds are not following on in your Series A
• Be direct about this and the reasons why, e.g. stage, focus, relationship-driven
• What you tell potential investors must be aligned to what past investors will say
• Point to other investors who are following on

Situation #2: Core team members have departed

• Be comfortable with talking about why and keep this high-level, e.g. performance-related,
relationship-driven, other opportunity, etc
• Show that you’ve hired or identified a strong replacement

Situation #3: You have made significant business model pivots or changes
• Be upfront about this – it should not be framed as a problem
• Explain learnings and highlight how this is better, e.g. drives growth and profitability
• Share traction to date
 Pitching 2c
What materials do you need? (I/II)

We suggest having both a teaser and pitch deck for pitching purposes:

1. Teaser
• Concise, compelling overview of your company and needs
• Use this when investors have little previous knowledge of you to give them a
quick preview before diving into details
• 5-10 slides, PPT or PDF; can also be a 2-3 page document

2. Pitch deck
• Supporting document and reference guide that touches on all the variables
that are key to your company’s success and significant to investors’ decision-
making
• Used for live pitches, on calls, and as post-pitch reference
• 10-20 slides, PPT or PDF
 Pitching 2c

What materials do I need? (II/II)

Sample pitch deck components

1. The problem your product solves (pain point)

Your
Company 2. Your solution to the problem (product)
(3-5 slides)
3. How your product makes money (revenue model)
4. The market for this product
Market
(2-3 slides) 5. The competition you face and how you will respond to it
6. Historical growth/traction
Status Being clear and explicit about what
7. Secured partnerships you have done is critical in a Series A
(3-5 slides)
8. Unit economics
9. Your team
For your teaser deck:
10. The deal you’re seeking
Other • Content is very similar
(2-3 slides) • Key difference is that teaser has
11. What you will use the funds for less details on financials (both
current and projected)
12. 3-5 year financial projections

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3. Diligence: Key questions to consider

Series A investors typically consider a deeper diligence simply because there is a

lot more to diligence.

3a• What to include in your data room? And, how to organize it?

3b• How to prepare for in-person diligence?

If investors who you’ve pitched to decide not to invest, schedule a

call to get their honest feedback – was their decision due to
mandate fit, stage, unit economics, etc…? Use their feedback to
guide future pitches and assess whether to approach them for your
next fundraise.
 Diligence 3a
What to include in your data room?
A data room is an easy, secure way to store, share, and control access to your
materials.
• Premium data room services exist, but we recommend using a free alternative while
you're still a small company e.g. DropBox, GoogleDrive, Box
• Some investors have different approaches to sharing information, so make sure to
ask about the fund’s NDA policy

Broadly, we see data room organized in 6 broad folders:

1. Business fundamentals (e.g., pitch deck, demos, operational dashboards, details on
tech roadmap, customer pipeline, marketing)
2. Legal documents (e.g., Article of Incorporation, Corporate Bylaws, past investment
docs)
3. Capitalization (e.g., cap table on a fully converted/diluted basis and term sheets of
current (if available) and past rounds)
4. Financials (e.g., historical monthly financial performance; income statement, P&L,
balance sheets; financial projections)
5. External agreements (e.g., partnership agreements, Intellectual Property)
6. Org chart and future hiring plans
 Diligence 3b
How to prepare for in-person diligence?

Series A investors typically conduct in-person diligence and like to do site visits to
meet with your team, customers, and partners.

• Prior to the on-site visit, investors typically communicate key goals of the
diligence and key stakeholders with whom they would like to meet
– If they do not, ask them explicitly to make best use of your time together
– Often, investors will want to meet team members beyond C-suite so be prepared
for that and make sure to communicate with your team

• Seek to make site visits as easy as possible for your investors

– Set up meetings and create a clear schedule for your investors to follow during
their site visits
– Site visits are an important opportunity to get to know your investors and build
rapport so be sure to include more unstructured time e.g. lunch

• Recognize that site visits are an opportunity to diligence potential investors

‾ Do not be afraid to challenge them - your ability to push back can be a strength
‾ Use the time to see if they are a professional and/or personal fit
‾ Learn more about their vision
4. Negotiations: Key questions to consider

Series A rounds, unlike seed rounds, are priced so negotiations can look very
different than what you are accustomed to.

4a• How to think about valuation?

4b• What are key terms you need to consider in a Series A term sheet? Where should
you push and where should you give?
 Negotiations 4a
How to think about valuation?
• At the Series A stage, priced equity – not convertible debt – is the norm and you will need to
settle on an exact valuation

• Build cap table, including conversion of convertible note and ESOP

• Typically, at this stage we see founders give up 10-30% of their company

• You can further refine this valuation estimate by adopting the same methods that investors
do:
– Discounted Cash Flow analysis: Perform a discounted cash flow analysis. This is also helpful
to do in advance because the financial projections you share with investors should tie with the
valuation you are proposing.
– Comparables analysis: Look at valuations of comps in the market. It can also be helpful to
share comps with investors to anchor the valuation and give you greater control.
– Discounted exit value: Look at returns of investment in the sector and use exit multiples to
determine a terminal value for the company. Examples of multiples to use include loan book
size, # of users, revenue, EBIDTA

• Always keep your Series B in mind – a higher valuation is not always better and can lead to
down rounds in the future

Be confident and don't undervalue yourself, but don't

propose a valuation that makes investors question you
 Negotiations 4b
What are the key terms to consider?
Overall guidance: Push on terms that will impact your day-to-day operations
• Often, entrepreneurs worry about one-off control rights such as veto rights
• Realistically, those rights are rarely exercised and make little difference
• Pick your battles when negotiating term sheets
• Focus most on C-suite operations, e.g. creating a subsidiary, reporting, appointing directors,
etc…

Other key terms to consider in term sheets include:

• ESOP:
‾ Most Series A companies create pools of 10-20% of outstanding stock for key executives
(founders should not be included in this pool).
‾ Make sure to ask if ESOP is issued before or after Series A.
‾ In later rounds, companies will need to expand the pool.
 For example, in Series B companies add another 5-10% and companies in Series C
and later tend to add 1-2% each year.

• Governance (board representation):

• At Series A, a 5 person board is a good size
• You need to think carefully about the composition of your board (see next slide)
• It is often helpful to have a variety of players at the table (e.g. impact and strategic,
independent advisors, etc.) who complement your skills .
• Do not just choose board members who you get along well with – your board is there to
challenge you and keep you accountable.
5. Post closing: Key questions to consider (I/II)
After closing the fund, there are a number of governance issues to consider:

• What is the role of your board?

‾ Will handle corporate governance, including issuing stock, setting up a stock
option plan, authorizing a fundraise, or getting loans
‾ Making critical discussions and decisions for the company, like whether to raise
money, enter into strategic partnerships, budget approval, or hire / fire senior
management

• How do you transition your board?

‾ At Series A, board composition typically includes co-founder(s), lead seed
investor, Series A lead investor, and an independent
‾ Consider offering a board observer seat to a valued investor, but do not dish
out board observer seats lightly and make sure he/she is a silent observer
‾ Set a culture of mutual trust, respect, and commitment from the get-go

• How do you recruit independent board members?

‾ Identify someone who has industry knowledge and valuable contacts
‾ Avoid people with strong loyalty or history with Board members
‾ Equity amount given depends on stage
5. Post closing: Key questions to consider (II/II)

• How do you recruit advisors?

‾ Think about what you might need in the next few years - you can always add
advisors, but you shouldn’t drop them, so make sure it’s a fit
‾ Make a list of the categories you could use help in – and then make a list of
people who are experts in those areas
‾ Consider giving them equity – the amount depends on what stage your
company is in

• What should you leverage your board for?

‾ Mentorship, advice and guidance
‾ Industry influence
‾ Future investment
‾ Connections to other investors, partners, or ecosystem stakeholders
Resources (I/II)
• Venture Deals – A comprehensive but readable book on understanding venture term
sheets.
• Sequoia Grove – A practical resource spanning topics from “developing a business
plan” to “to sell or not to sell”
• Ask The VC – From the writers of Venture Deals, a blog in which professional VCs
answer questions from founders.
• How to Raise a Successful VC Round or Series A – Advice specific to the Series A
round from the perspective of an entrepreneur who successfully raised a Series A
• What does it take to get a Series A Funding? – Insights from an early-stage financial
services firm
• How to Present to Investors – Concise guide to pitching. If you only read one piece on
pitching, read this.
• Lessons from a Study of Perfect Pitch Decks – A quantitative approach to determining
pitch deck best practices
• Pitchenvy: A gallery of startup pitch decks
• Startup Viagra: How to Pitch a VC – A humorous but not inaccurate guide from Dave
McClure, a prominent VC
Resources (II/II)
The blogs of prominent VCs can be great regular sources of insight into the fundraising
process. Here are some of the best:
• Sam Altman
• Fred Wilson
• Brad Feld
• Aaron Harris
• Andy Weissman
• Chris Dixon
• Bill Gurley
• Paige Craig
• Paul Graham
• Mark Andreessen
• First Round Review
• Board Best Practices
• ESOPs: Overview and Best Practices
Investing in individuals.
Improving our world.

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