Yesterday, I hosted a group of French entrepreneurs, to share tips about fundraising in the US (and in general). It reminded me of a blog post I wrote right after raising our series A three years ago, everything there still applies, so just republishing it here on Medium.
September 6th 2015
3 months ago, I closed my 3rd round of financing: a $7m series A for Sketchfab. There are many posts out there about the series A crunch: there is more seed funding available, but the amount available for A rounds hasn’t changed, hence it’s harder to raise an A (great post about it by Josh Kopelamn, and data from Mattermark here). So I wanted to share here my key learnings throughout the process, and a few tips which hopefully can help you make it a success.
Leverage your momentum
One thing that can really help you raise is momentum. This is probably more important at the seed stage, as the more you grow the less it is a bet for investors. But it’s still a great asset at the A stage: it helps you get confidence in your plan and your pitch, and also control your timing. Momentum can come from a variety of reasons:
- high profile partnership
- key hire
- key product update
- getting into a great accelerator
- winning a renowned startup competition…
Most of the time, momentum results in great PR and positive word of mouth. VCs don’t want to miss out on an good opportunity, and momentum means that a/ you are doing well and b/ everybody knows about it, helping VCs to act fast.
Many entrepreneurs tend to plan their fundraising process based on their cash flow, hence aiming at raising when they run out of cash, which is just the worst timing to be fundraising, because you have zero leverage. 3 great posts about it:
- “VCs as gas station” from Fred Wilson
- “Running out of money isn’t a milestone” from Eric Paley
- “The funding round is dead” from James Wise
Typically at Sketchfab, I was initially aiming at raising in Q3 or Q4 2015, when getting close to being out of cash. But we delivered super well in Q1 and Q2, closing partnerships with Facebook and Microsoft and delivering key product updates, resulting in growth and PR, so I decided to get started sooner, and the process ended up being much smoother.
Focus on one key metric
Momentum is often tied to growth, which is the second top thing which will get you to a successful fundraising process. What I found is that it’s hard to get all your metrics to the top right corner at the same time, so it can be more efficient to focus on the one core metric that is both growing really well and is a good definition of what your business is.
For us it was the number of uploads on Sketchfab, a good way to show the activity on the site, the diversity of the content, how we compare with competitors, and how big can this become. This obviously depends on which business you are in, typically for a SaaS company it will probably be monthly recuring revenue growth, and you don’t always get to pick your favorite metric.
Build relationships early
One of my most important learning from 3 rounds of funding is that time is the best due diligence. Fundraising is an ongoing process, and building and investing in relationships with potential investors early on matters immensely. I met Bernard from Balderton 2 years before he invested in our seed round. I met Matt from FirstMark 2 years before he invested in our series A.
My first advice here is to start by identifying the VCs you like and who like you. Once you’ve identified the ones you like, a relatively easy way to gauge their interest for what you are doing is to ask for help and intros. Many won’t be responsive, but for those who do respond positively and start helping out, there are 3 benefits:
- it shows they care about what you are doing
- it helps them get to know you better and start an informal due diligence process
- it gets them involved with your success, and become de facto invested in your project
Once you’ve started this relationship, you need to make sure to keep it alive, by updating your favorite VCs about everything important, and keep asking for help. When you’ll start fundraising, you’ll have the long list of so-called “top tier VCs”, and you’ll have a shortlist of those you know and who know you (who hopefully are a top tier VC as well :)). So with most VCs you’ll be pretty much starting from scratch, meaning the process can take anywhere from 3 to 6 months. But when it comes to speaking with your shortlist, as they know you, you’ll get much faster to a yes or a no.
When I told Matt I was fundraising, he knew perfectly where we were company wise: product, team, milestones, partnerships, challenges. We were already like an open book for him. So it was mostly a question of yes or no. It was a yes, for all of the above.
Good luck! Feel free to ping me if you think I can be helpful: alban[at] denoyel[dot]com