Genesis for this article:
I’ve advised lots of companies I have invested in through Y Combinator and personally through the venture fundraising process.
Having pitched over 100 investors and successfully raised ~$100mm in venture stage financing,
I want to share the lessons I’ve learned with founders who are new to this process.
For my most recent company, Atrium LTS, we raised a $10.5mm Series A let by General Catalyst, with participation from NEA, Greylock, Founders Fund, Thrive, Shasta and many more investors.
When are you ready to raise a Series A?
The snide answer is that you are ready to raise an A when you can convince a VC to give you a term sheet. The more nuanced answer is when you have achieved compelling enough intermediate milestones that convince VCs that cash is your constraint to scaling your business.
In other words, you have something that works, and all it takes is pouring money on it to grow it much, much bigger.
For a couple reasons, I am actually not going to outline what those actual milestones are.
First, they are different depending on what industry you are in (are you a SaaS company? consumer? autonomous cars?), and I am not an expert in every industry.
Second, the goalposts are always moving.
Third, those milestones are modulated by other facts about your company (did you compile an amazing team? are you really good at telling your story?). If you want to figure out what milestones you probably need to get to raise a Series A, you are best off looking at the metrics of other companies in your space that have recently raised, possibly by just asking the founders.
A note on VC economics that has been written about to death, but bears repeating: VCs do not want to invest in businesses that are creating steady revenue, growing 20% a year.
The fund model is such that they are incentivized to want to invest in businesses that can be worth 1, 10 or 100 billion dollars and in a single stroke return multiples of their fund. This is not a moral judgment, this is structural to the venture funds. If you have a linearly growing business venture capital is probably not a good fit for you.
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