The path to Series A

Raising a Series A takes a lot more than many entrepreneurs think.

Of course, there’s the pitch deck, but that document is informed by months of preparation: countless hours of distilling the essence of the company, building a bullet-proof narrative and formulating the insights that reveal how effectively the startup can  and ideally will  disrupt its chosen industry.

As a venture firm that supports companies from the beginning of their entrepreneurial journey, Real Ventures sees the Series A as an important milestone on the path toward massive global success.

While the seed round is about validation, the Series A is about scale. It’s when an investor looks at a company and says: this startup has what it takes to become a billion-dollar business and I’m willing to bet on this team and their vision.

But how does a company know that it’s time to raise a Series A? And what is the best way to ensure success? While there’s no one-size-fits-all approach, we at Real asked founders for the best advice they got as they prepared to raise millions.

Building the story

The Series A process involves peeling away the layers to isolate the essence of the business, typically  a long and often difficult process.

“(Real partner) John (Stokes) kept saying that it’s always bigger than that first version of the story or deck that you put together,” said Mikael Cho, co-founder and CEO of Unsplash, a free curated photography marketplace that raised a $7.25 million Series A in February.

“I’d share the deck and he’d say, ‘It’s bigger than that. There’s more there than that,’” Cho said. “We went through 20 iterations before the first version and by the time we had finished fundraising we’d gone through another 20 iterations.”

“At Series A, it’s a big deal to tell your story right and (communicate) the confidence that you are the ones that can pull this off,” he said.

“Series A brings with it the burden of Series A prep,” said Steve Barha, CEO of Instant Financial. Instant recently raised their $14.3 million Series A to scale their technology that enables companies to pay shift workers at the end of each day.

“Sam (Haffar, a Real partner) mentioned one time: ‘Steve, just stop. There’s way too much goodness here. You can’t tell everybody all this incredible stuff. You need three, four, five things and you need to focus on that as the story,’” Barha said.

“Without having put the work in with Sam to get the story right, we wouldn’t have gotten the deal we did. Period,” he said.

Lauren Jane Heller, Director of Communications, Real Ventures. Photo courtesy of the firm.
Lauren Jane Heller, Director of Communications, Real Ventures. Photo courtesy of the firm.

The burden of “no”

Yet regardless of how much preparation is done, most founders still hear a lot of “no’s” when speaking with investors.

“Your Series A will take everything you’ve got,” said Carlo Perez, co-founder and CEO of Swift Medical, a wound care management company that raised $11.6 million to further develop their technology.

“The experience was one of the hardest things I’ve ever done,” Perez said. “I think it came down to the pure psychological challenge. If you’re not out there selling snake oil , you’re out there with real traction, a real company and a team that’s kicking ass,  then really it’s on you to be able to burden all the ‘no’s’ and all of the stress and all of the fires.”

“I play a lot of sports and I’ve trained pretty hard in the past but (fundraising) is like nothing else,” he added.

For Cho and Unsplash, the fundraising effort was also long and arduous.

“There were points where we were doubting it was going to happen and we had all of these backup plans, but at the core we were never going to give up,” Cho said. “You keep learning and you keep using everything you learn to improve.”

“It was only really in the final three months that I felt that we had the right mix of how much money we were asking for and the confidence in presenting the story,” he said. “We had multiple term sheets coming in and that’s the weird thing about it: it can be so dry and then all of a sudden, if you hit on all of these things and there’s interest, it all accelerates and creates momentum.”

“Now I feel almost grateful that we went through this process,” Cho said. “Because we had 200-plus meetings with 43 investors and heard tons and tons of ‘no’s,’ we now have information and the ability to speak about the company at a whole other level.”

On believing in your team and vision

But surely with tons of ‘no’s’ comes a lot of self-doubt. How do co-founders get through the challenges of the fundraising rollercoaster?

According to Cho and Perez, they look to the support of their teammates and partners.

“I have two co-founders,” said Cho. “We did most of the fundraising together. It’s really helpful to have the people there with you. I found that above everything was probably the single most beneficial thing. We’re in it all together: we could have multiple points of view, we could iterate on the story, we could improve much quicker than if we were doing it alone.”

“There was something that the team — and by team I mean Sam and Alan (MacIntosh, a Real partner) — kept saying to me,” Perez said. “It was this idea of ‘It’s gonna happen, you’ve just gotta keep going.’”

“And that’s what we did,” he added. “I imagine a mule pulling a barrel through the desert and someone telling the donkey — I guess I’m the donkey in that scenario — to keep going.”

On finding the right investors

Another insight that comes up again and again is the value of having the right investors and supporters.

“Be very thoughtful when you pick an investor,” said Liran Belenzon, CEO of BenchSci, an artificial intelligence-powered search engine for biomedical researchers that raised a $10.3 mln Series A in May.

“An investor is almost like another founder that will be in the company,” Belenzon said. “It really, really matters who you pick for seed because that’s who’s going to make your A round either easier or harder. (It will affect) which investors are going to come in later, which employees are going to want to work with you.”

“I’ve had the experience where because of our investors, we’ve had employees who’ve reached out and joined the company,” he added. “Even though people think it’s just money, it really really matters.”

This sentiment was echoed by Perez and the Swift Medical team.

“We were very lucky to have very good, supportive investors from the start,” Perez said. “It’s not always easy to keep — everybody has different goals — but with Real Ventures and some of our early investors we were so lucky that they were really supportive and really helped us raise that second round.”

For Cho at Unsplash, the mission and style of the VC is also of great importance.

“For us it’s not just about the sales and the bottom line,” Cho said. We have a big community and we want to help support everyone involved in that ecosystem.”

“So we’re looking for investors who are mission-driven and that was one of the big keys for us,” he said. What have they done to prove that they believe in this mission? What investments have they made? How did they treat those sorts of companies? One of the things that we said is: any investor we’re looking at, especially any investor we’d look at taking on the board, should be someone we would want to hire.”

And for Valérie Robitaille, CEO of XpertSea, a company that recently raised $10 million for their technology, which allows producers to count, size and image aquatic production, it was also about getting investors with the right industry connections and knowledge.

“We wanted to find investors that had industry knowledge plus tech contacts and knowledge,” Robitaille said. “It took a while but we didn’t settle and were able to find the right partners.”

“We could have optimized the deal by 10 percent to 20 percent but having the best partner is definitely the way to go,” she added. “Sometimes we hear things and it doesn’t always work out that way for other companies, but for us, it was great.”

On being a Canadian startup

Finally, if you’re curious about whether or not Canadian startups are treated differently in Silicon Valley and New York, founders had a few different opinions.

Belenzon found that in their fundraising process BenchSci could use the fact that the company is Canadian to stand out.

“I think there’s an advantage for Canadian companies to raise their A round because they’re not from the Valley,” Belenzon said. “It allows them to create scarcity.”

“In this A round, we were very strategic in terms of who we spoke to, when we started talking to VCs, and also in terms of the prep work we did,” he said. “You also need to make it as easy as possible for VCs to make a decision. Give them all the information they need. If you run a really good process it can lead to very good money in a very smooth and fast way.”

Cho, on the other hand, feels that there’s definitely a difference in the way that Canadian startups are treated.

“People won’t really say it but I believe there’s an apprehension toward Canada,” Cho said. “People haven’t heard of Montréal in the sense that there’s X big unicorn company that’s come from that place, so why should I care? It’s just another risk factor for some investors.”

“I think it’s a piece of the pie — I don’t think it’s a major one — and it matters more for certain people than others,” he said.

Perez believes that the biggest obstacles for Canadian startups have less to do with nationality and more to do with attitude.

“I think investors everywhere understand this is a common language of disruption,” Perez said. “Whether you’re a Canadian company, a U.S. company, a Brazilian company or Chinese company, I don’t think it really matters to them (the investors). From the cost of living to the strength of the talent pool, there are so many advantages to being north of the border.”

“I would say that the challenge of being Canadian is, potentially, just being Canadian,” he added. “We can be very humble. We can be very accommodating. We can be less brash and outlandish — and I think the only thing we really need to do is go out there and ask for the massive raise that the companies in the States are raising and the valuations that they’re asking for. I think that’s the only difference.”

And the final word on the matter goes to Instant’s Barha:

“I know there are some funds that don’t invest in Canadian companies — that’s just stupid to be perfectly honest,” Barha said. “It’s 2018. How do you make a decree like that?”

“For most funds, if they’re actually willing to do the diligence and see how easy it is to invest in Canadian companies, they’ll see there’s nothing notable in terms of legal cost or taxes,” he said. “To be perfectly honest, our last two rounds have been led by American VCs but written on Canadian paper.”

“There are incredible companies north of the border that should definitely be garnering interest and I think it’s lazy on a VC’s part to say ‘No, we don’t invest in Canadian companies,'” he said.

This article was adapted from an original Real Ventures blog post. To view the original, the first in a series about preparing for a Series A round, please click here.

Lauren Jane Heller is the director of communications at Real Ventures. She joined the firm in late 2017 after several years working as a journalist, including as a staff writer at BetaKit.