What does a series A funding strategy and plan look like?

This post is the first in a series that I am planning to do on fund raising. I have successfully raised money 3 times (to a total of $29 Million – series A, B and C) and failed twice (once trying to raise $2 Million series A and second time $3-$5 Million series B).

As a background please read Elizabeth’s great post on “Behind the scenes of a seed round”.

Fund raising is one of the most difficult parts of a founder’s job. Getting money from investors of any type is hard. Dont be fooled by stories of entrepreneurs talking to investors and getting checks in 10 minutes. Those are truly black swan events.

The first thing you have to realize is that you need to develop an comprehensive plan and strategy to raise your series A. Think of it as an effort that’s similar to the launch your product. For purposes of this discussion lets call series A, as your first institutional round. I am also making the assumption that you have a working product, paying customers and are targeting a very large market (>$1 B for US, >$250M in India). If any of those criteria are not met, dont bother trying to raise money in this environment.

What are the 3 most important elements of your funding plan?

1. The pitch deck – a 15 slide PowerPoint presentation which summarizes the market, problem, traction and investment requirements. This is needed only for the face-to-face meetings.

2. The target list of potential investors – a Excel spreadsheet which has investor’s firm, name of partner, list of 2-3 recent investments (in the same general space as yours), email addresses, phone numbers, admin assistant’s name & email address, investor connection (people who can give you warm introductions to the investors), status and notes fields. You could use a CRM tool like Zoho if you like, but its overkill for this purpose is what my experience tells me.

3. An email introduction (40 – 100 words) and a one page summary. A simple text file with no images or graphs (something that the investor can read on their mobile phone (most have blackberry, although that’s changing). This can be sent to your connections to introduce you to investors or directly to known investors.

What should your strategy be?

1. Who should you target by role?: Investment firms have partners (decision makers) and associate / principals (decision enablers). Partners make decisions so if you can, get a introduction to a partner. If you cant, its not all doom and gloom, since many partners rely on their associates and principals to source deals for them.

2. Who should you target by investment thesis: Every investment firm has an investment thesis (how they will deploy funds to get best returns for their investors). This should guide you as to whether you’d be a good fit for the firm. Example: An investment firm might say we believe India’s broadband access and huge number of consumers with high disposable incomes is a great target for Indian eCommerce companies. So, they will deploy a certain % of their funds in eCommerce companies. Similar theses exists for big data, SaaS, etc.

Example: if you are an education startup focusing on India, Lightspeed (thanks to their success with TutorVista) should be on the top of your list. If you are a SaaS firm targeting US, Accel (thanks to Freshdesk) should be on your list. If you are a travel technology startup, Helion & Saif (thanks to Make My Trip) should be obvious targets.

A word of caution: If a firm has invested in a company in your sector, they will very likely ask you to speak to the CEO of their portfolio company to perform cursory due diligence. You may decide that company might be competitive and likely to execute your idea better since they have more resources. So proceed with caution and dont reveal any thing during your due diligence that might hurt you later.

Many investors invest in a sector because they “need one of those in their portfolio”. Example: Every firm has a baby products eCommerce company. So, I also recommend the “herd rule”. Which means, you should talk to other investors if your competitor has been funded by your first choice investor.

3. Who should you target by investment stage: Although every Indian investor claims to be sector agnostic and stage agnostic, there are a few early adopter VC’s. If you are the “first” in a new space, then consider an early adopter investor, else any investor who has not made an investment in the sector will suffice.

In a next post I will outline what the series A funding process should look like. This post will include information about whether you should follow a “back-to-back” process, or do a “listen and tweak” process.

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13 thoughts on “What does a series A funding strategy and plan look like?

  1. Kishan

    Excellent post. Just out of curosity and observation I believe there too many venture capitalists in India who have generic focus , don’t you think there is need for specialized funds .

    Reply
  2. Vishal Kumar Singh

    Nice post. Just had a query. Let us say you are targeting an area of healthcare which has a market of around 100 crores. The overall market may be more than 1000 crores, which again will develop in coming years. Does targeting only 100 crore market making funding difficult. The fact is that 100 crore market exist today but the larger market will develop in coming years.

    Reply
  3. Pingback: What does a funding strategy and plan look like? | Strategic Planning for growth | Scoop.it

  4. Bhuvan thaker (@bhuvanthaker)

    Looking forward to more reads!

    + Also i could not find comment open for the earlier article “How to disrupt the VC industry? – When i read your article, i realised i am doing this unconsciously, the difference i don’t have a classification to it, since i don’t put any money nor do i show any commercial interest. Happy to read this article, i hope change is around the corner for most.

    + Another article which is not open for comments – “early adopter” VC in India? – Does Strategic investment by corporate qualify, is yes; looking forward to seeing them on the list.

    Reply
  5. Pingback: What should a series A funding process look like? Step 1: The introduction « Be a Force of Good

  6. Simran

    Great Post! Mukund, if possible can you also share some insights on another basic question (i was recently asked by an angel and I don’t know if i had the right answer) – why do you really need the money? The obvious answer is to scale up but is there something more to it? Do investors have preferences for their money to be spent only on certain kind of costs? Eg – isn’t it given that in consumer internet, most VC money will be spent on marketing & employee salaries. Here’s a nice article trying to answer the same question – http://duskic.com/investor-asks-why-do-you-need-an-investment/

    Reply
  7. Pingback: What should a series A funding process look like? Step 2: The first meeting and follow up « Be a Force of Good

  8. Pingback: What should a series A funding process look like? Step 3: presenting to the partnership « Be a Force of Good

  9. Pingback: What should a series A funding process look like? Step 3: presenting to the partnership

  10. Pingback: What should a series A funding process look like? Step 4: Negotiations and Legal Discussion « Be a Force of Good

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