Wednesday Mar 26, 2014 by David Beisel - Co-Founder and Partner, NextView Ventures
A couple years ago, my partner Lee penned a blog post about the milestone benchmarks for startups raising a Series A round of financing. The five conditions for a Series A financing which he enumerated are: a core team ready to scale, demonstrable market size, repeatable cost effective customer acquisition, metric momentum, and plausible monetization. But unfortunately these are neither necessary nor sufficient for raising that round, and are instead merely guideposts. There really isn’t a hard and fast prescription for start-ups to follow after they’ve raised their Seed round, so what’s a startup to do? Just plow ahead blindly and hope for the best?
In the past four years since we’ve been investing together at NextView, 70%+ of those companies in our portfolio which have made attempts at raising full-fledged multi-million dollar Series A after their Seed round have been able to successfully do so (with another additional cohort raising new capital subsequent to seed but not bona fide Series A). And in seeing that process unfold numerous times, I’ve picked up that there are really four main distinct playbooks which a Founder/CEO can run in the subsequent 12-18 months following a Seed round in preparation for the next round of financing.
The four winning strategies for startups to go from Seed to A are:
All of these strategies point in similar directions, but are certainly not the same vector. There are inherent tension pulls between building scale and generating revenue, as well as between crafting reality and generating hype-full promise… all with limited resources, especially in a Seed round.
I don’t think that it’s incumbent on a new venture to start out knowing exactly which path above to pursue, as flexibility and optionality during an early experimentation phase along a company’s life-cycle can be incredibly valuable. But as the next fundraising effort shifts from something theoretical in the fuzzy future to an event on the horizon to plan for, devising one of the gameplans above will help crisp the story and the efforts of the entire company to rally around it. A fundraising compass is most helpful if you have a map of where you’re heading.
David Beisel is a Co-Founder & Partner at NextView Ventures. You can find this post, as well as additional content on his blog called GenuineVC. You can also follow David (@davidbeisel) on Twitter by clicking here.