14. The Stages of Fundraising (Ann Winblad)

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Ann Winblad joins Nick on The Full Ratchet to discuss the stages of fundraising including:

  • ann winblad stages of fundraisingWe often hear financings referred to as Seed, Series A, Series B, etc.  Can you start us off with a general overview of the stages, the amounts being raised and the average post-money valuations at each?
  • What types of investors play at different stages and how does the mix change?
  • What major milestones are often expected of the startup at each different stage?
  • What issues/mistakes have you seen either investors or founders make at various financing stages?
  • Can you tell us what the Series A crunch is and what effects it’s having on the industry?
  • We have seen non-traditional players entering the late-stage and secondary market.  Can you illustrate why this is happening and what it means for Venture?

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Key Takeaways:

1.  The expectation with the seed round is that the company will get a product that is demonstrable and at least shown to a representative set of the market that they are going to approach. Seed is often done via “unpriced” rounds as we discussed last week w/ Bill Payne on Convertible Notes. Remember that these these funding instruments allow the investor to convert to equity based on the raise at the subsequent A Round. Ann also mention that the standard:We often think about Angels and VCs but there are also Corporate Investors that are increasingly becoming active. And the importance of choosing strong Series A and B venture capitalists is important here b/c they are the entities with not only the network of corporate partners but also the credibility with those partners.We often think about Angels and VCs but there are also Corporate Investors that are increasingly becoming active.  And the importance of choosing strong Series A and B venture capitalists is important here b/c they are the entities with not only the network of corporate partners but also the credibility with those partners.

  • Seed Round raise is $500k and if a valuation is established, it is often under $3M dollars
  • A Round raise is $3M and the valuation is often under $10M. A typical Software A Round is called a four on four which means the pre-money valuation is $4M, the raise is $4M, so the post-money valuation is $8M.
  • And rember that A investors are often the first institutional money in and are very involved in many of the early-stage activity. They help challenge and test assumptions such as value proposition, target market, pricing. They assist with fundraising, networking and HR. The regular activity is much different for the A investors than the scaling focus of later-stage investors
  • Whereas a B Round has no “typical.” It really depends on how far you’ve gone and how much traction you have.

2.  We often think about Angels and VCs but there are also Corporate Investors that are increasingly becoming active.  And the importance of choosing strong Series A and B venture capitalists is important here b/c they are the entities with not only the network of corporate partners but also the credibility with those partners.

 

3.  Key metrics and assumptions to be vetted by the time you get to the B Round:

  • What is Customer Retention
  • Can I upsell software to these customers?
  • Can I hire more sales people and proportionally get more customers?
  • What are my KPIs?
  • What is my cost of customer acquisition or CAC Ratio?
  • What is the Churn ratio of my customers?
  • Are you delivering extraordinary value to customers and do you know how to:
    • Reach them
    • Effectively Close the Sale
    • Retain them
    • and do this over and over again

 

Tip of the Week:  The One Question Customers Should Ask 

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