Pre-requisites to Attract Series B Funding and Beyond
Up until now, your idea was yours and a bunch of others. You have been able to convince some people about your vision, and they have believed in you, put in their money or given their services to building the foundation for your dream. Some may have even bought or tried your product. The world seems like an ocean of opportunities, and you are all geared up to push through. Early adopters have enthusiastically raised hopes and the product seems to have a bright future. So far, so good.
In the harsh business world, hope is good, but vision and a concrete plan are what differentiate successful businesses from great ‘ideas’. You need to have clear progress plans with well-defined milestones. Here is where Series B funding starts to take shape.
This round of financing involves VC’s or PE investors, usually after your company has achieved certain credibility or success. Successive rounds of funding as you grow and expand will lead to Series C and beyond. These rounds are important because you would probably use the funds disproportionately for marketing, covering expenses and other needs or expanding a successfully running and revenue-generating business.
Am I ready?
Your startup has had successful funding from Series A, that you used to push things fast. After tasting initial market success, just when you are riding high on your innovative ideas gathering steam, your finances seem to have burned up. Is it time go for Series B (or Series C or beyond…)? Before you head out, sit back and do a thorough reality-check. Are you ready to go out there for the investors? Is your pitch strong and convincing enough?
It is a helpful practice to make a checklist for all the things that you should be doing and your business should be exhibiting, in order to attract funds. Here are some of the tips that will help you:
A product that someone needs
First of all, it is important to have a product or a service that the customer is willing to pay for. A business prototype from Series A funding is necessary even if it has generated no revenue, as long as it can prove the viability and need for your product or service.
Series B and the successive rounds are all about instilling confidence in your investors. To show your business prowess, you must ensure you have a verifiable customer feedback, where your customers can vouch for your product.
Invest time in going over multiple operations onto building a solid execution plan, even if your revenues are nil or in the negative. If your plan can show achievable revenue once you get your funds, you will be able to convince investors that your venture is worth their money. After all, your plan is the only thing that is yours for sure, being low on money.
There should be a clear-cut expansion plan to increase your team. Have a hiring plan ready for getting onboard the sales, finance, marketing and management team, and a bunch of people with the right expertise and fire-in the-belly to execute your vision successfully.
Remember, Series B is growth capital. One should try to achieve operational profitability before attempting to raise Series B.
Ready reference docket
Preparing an investor deck is highly recommended when you go and meet potential investors. A typical desk contains all the information that they would like to see – your company’s profile, business model, cash flow, team on board, USP’s of your company, your customer footprint, product portfolio, any media reports about you etc.
Find investors who connect
Carefully choose an investor(s) who will find both, your industry and your product appealing. There is no point going to an investor who has a penchant towards real estate and progress, if you are trying to raise funds for your agro-based startup, for instance. Study the investor’s past investments carefully, talk to other entrepreneurs who have received funding from them to understand what they look for. Prepare accordingly to be able to up your own pitch. Also scrutinize carefully whether you find the investor appealing. Going to someone with whom you do not connect, just because he/she has the money, could be disastrous. After all, going forwards, this common understanding will form the base of a solid path to growth.
Make a strong elevator pitch to make your investors believe in you. The executive summary that you present before them must show a growing customer need, a marketable product, and proof of sustainable and retainable resources, which includes your team. The sales team must have a sales expansion plan (more applicable for Series C) and the marketing team must have a measurable target plan visible for the potential investors to understand and identify with.
If you are able to gain the confidence of your investors, make them see your vision as a larger and better opportunity, there are greater chances that you will breeze your way through the seemingly turbulent fund raising process.
Suggested Reading: Indian Startup Funding Chart 2015