Thursday, January 19, 2012

Six Steps to a Successful Series B

A successful fundraising is never an accident.  As any entrepreneur will tell you, fundraising can be maddening – explaining your business model over and over again, providing endless references, projections and legal documents – but it is also essential.  It’s the fuel that drives your engine, and empowers you to deliver a top-notch offering to more and more customers.  

So, how can you be more efficient, and increase the likelihood of success in the Series B fundraising process?  First, understand that a Series B is different than your earlier fundraises: Before, you may have gotten the checks simply with an awesome team and compelling vision.  Perhaps you even had a beta offering, with some initial customer interest.  But, by the time you’re looking for a Series B, you better be ready to show something more.  

Here are six basic steps to expediting the Series B process:

1.       Plan for Success.  At least a year before you need the money, think about what level of company performance you need to be evidencing to investors.   What milestones will show that your company is resonating with customers, and is well on its way to dominating its market?  How many customers, what key customers, how much revenue, and what key metrics – churn, acquisition cost, margins – are going to “wow” those investors?  These should drive activities through the year.
2.       Show Traction / Proof Points.  For one Burkland Associates SaaS client, the most-important metrics included Contracted Monthly Recurring Revenue (CMRR), churn, and Customer Acquisition Cost (CAC): for this client, these were the Series B “proof points in the pudding”, evidencing that our client had a product that more and more customers needed to have, that the sales team was finding its sweet spot, that our customer service and account management were keeping the customers happy, and that we were doing it in a way that showed a path to profitability. 
3.       Develop a Sales Plan for Series B Investors.  Just like any other sales process, make a rank-order list of your top twenty to thirty potential investors.  (By the time you’re at your Series B, your success rate through the funnel should be higher, so twenty to thirty should suffice.)  Go even further, and identify the specific partners within each firm with whom you would like to partner.  Then, tap all of your networks to figure-out how to get meetings with those partners. 
4.       Cultivate Investor Interest.  Time to warm-up your audience.  Generate free press with media interviews, and get these posted (and re-posted) throughout social media.  Take informal, “checkin’-in” conversations with investors, including ones not on your list.  You want people talking about you, before you’re talking to them about investing. 
5.       Execute the Process.  Clearly communicate the timeline to potential investors.  If you want to be credible, and to avoid lapsing into an open-ended process, be prepared to accept an on-time offer, especially if from an investor that’s high on your list, even if that means possibly sacrificing a potentially higher valuation from another investor.  Also, be prepared for surprises during detailed diligence, even if the timeframe is constrained: you will hit road bumps.  
6.       Commit the Time.  For the four months before initiating the process, the company’s key principals should expect to commit at least one extra hour per week to plan, meet with investors and media, and to start reviewing due diligence materials, over and above the regular company performance reviews.  Once the process begins, those principals should expect to commit 75% of their time just to the funding process.  

Is this really possible?  Absolutely!  We recently helped a SaaS client raise a $12 million Series B in ten weeks.  Going into the process, they had the right stuff: with 100+ paying customers, they not only had a vision and compelling product, their sales force was also proving the offering’s value proposition outside of their initial customer vertical, and they had been tracking the right metrics to evidence their company’s performance.  

And this was no accident.  At least a year beforehand, we were planning for success, identifying the proof points that would be necessary to swiftly convince investors to get behind our growth trajectory.  Focus early on what you need to close the investment “sale”, and you will empower yourself to make the Series B fundraise as painless as possible. 

Ted Rebholz                                                           Jeff Burkland