In today’s competitive marketplace, you must stand out to attract investment. A recent webinar, co-hosted by Capdesk and Cooper Parry, featuring Capdesk’s CFO Greg Carter alongside industry experts Ed Keelan, Sarah Abrahams and Ali Ramadan considered how startup leaders can improve their chances of succeeding at series A.
Pursuing funding is hard at the best of times, let alone when you throw a global pandemic into the mix. Nonetheless, fundraising activity across Europe remained strong during the first half of 2020. According to research, some €49 billion was raised from private equity, venture capital and infrastructure investors.
While that amount is down almost 4% on the €51 billion raised over the same period in 2019, it shows that there’s still enormous appetite from investors to get deals done – great news for startup founders and leaders approaching their series A fundraise. Here’s what our panel had to say about making a success of it.
Prepare more than an excellent pitch
As for the run-up to approaching investors, the advice was clear: don’t spend all your time perfecting presentations and polishing slides. Instead, break down the figures, map out growth plans and show how you’re measuring the things that matter.
Ed Keelan, Investment Director at Octopus Investments, said that first-time fundraisers tend not to be ready for some of his critical questions.
“What I want a company to think about is unit economics,” he explained. “What are your KPIs? What’s driving your business? How do you grow that business in an efficient way?”
Experts on the panel agreed that the most convincing pitches come from founders who have considered the mindset of a series A investor.
Sarah Abrahams, Head of Growth Finance at Cooper Parry, said that series A investors are typically looking for a proven business model, where any inefficiencies have been ironed out. They want to be able to see how their investment will make an enterprise go further or faster.
Greg Carter, CFO at Capdesk, agreed, comparing the steps involved in a successful series A investment to those in a sales process.
“When securing investment, you have to identify prospects, secure pitches, qualify purchase intent, negotiate commercial, move from commercial to legal documents – and then close.”
He added: “VCs see thousands of deals and ultimately invest in just a handful of them. A lot of entrepreneurs fail to accurately qualify a VC’s intent and end up wasting precious energy.”
Read signs from VCs carefully
If you’re embarking on a series A fundraising it may well be your first time seeking venture capital cash. With such enthusiasm for your own proposition, it can be easy to misread the signs from VCs.
“Often, you can be talking to an investor who seems enthusiastic, looking for a deeper analysis of your competitors or asking for a breakdown of unit economics, but turns out to be a junior member of the team,” said Capdesk’s Greg Carter.
“You need to get a good understanding of the dynamics of the VC firm as a whole. Figure out where you are in the sales cycle so you know what the next stage is, and how far you are from a term sheet.”
Appoint advisors to combat the hidden cost of fundraising
Think about bringing on an advisor to support you through the fundraising process. A little expertise goes a long way, especially when it comes to knowing what to worry about and what to let slide.
Adding the support of an additional resource, such as an interim CFO or an external advisor, can also ensure more time and focus is dedicated to securing the funding.
“As a founder, the question to ask yourself is ‘do I have six, nine, or possibly twelve months to step away from my day-to-day tasks?’ Fundraising is a full-time process,” said Cooper Parry’s Sarah Abrahams.
“Any time you’re spending on a fundraise equates to time you’re not thinking about your next big strategic sale or pushing the business forward. The best thing you can do as founders in the middle of a fundraise is to smash your targets, as it will instil confidence in your investors.”
Beyond the bottom line, there’s the emotional toll of the gruelling fundraising process that founders will contend with. Finding someone to help with this could prove invaluable, suggested Capdesk’s Greg Carter.
“From an operator’s perspective, the series A is one of the most stressful periods you’ll go through as an entrepreneur,” he explained, “and it’s not something you can normally share with the wider team. Find an outlet you can trust within the firm who can help you take that step back, listen to concerns and provide a sounding board.”
Seek qualified advice across the board
Investors are professional dealmakers, so it can pay to have an expert who is familiar with the market and current investment themes.
A good advisor can use their network to ascertain whether a VC’s interest in your business is genuine and identify the firm’s key decision-makers. They should also be able to offer additional market insight about pricing, valuation trends and comparable deals. At their very best, they may even spot the best available terms achievable.
Just like advisors, lawyers can be a huge asset but vary greatly in ability. Goodwin Procter’s Ali Ramadan explained that it’s worthwhile seeking legal counsel before starting your series A journey – so long as your appointed lawyer understands the specifics of series A fundraising and negotiating with VCs.
He said: “Not having the right legal advice can make the transaction that much more difficult to get it over the line. It is all about deal execution and making sure that you do a deal on good terms.”
Heed the positive signs
While 2020 has brought businesses too many challenges to count, Octopus Investments’ Ed Keelan closed out the webinar with a positive spin on things, saying:
“As Covid-19 hit we expected that valuations would be down. But for those companies who have shown that they work well in the new world, there wasn’t any depression in valuations. If anything there’s now a stronger rationale for investing in these companies over more traditional businesses.”