Timing is crucial to a successful Series A, which is usually your first institutional round. There could be very limited interest if it is too early, and you may run out of money if it is too late. Worst of all is successfully raising capital when your startup is not ready for it.

As the founder/technopreneur, you have put your money in, and perhaps your co-founder(s), friends and family have also contributed pre-seed capital to get your idea off the ground. The company got its first business and you made plans to move to the next level.

You needed cash to develop your product beyond the MVP and to extend your team beyond the founders. You approached angels (who contributed a median $150k) or certain VCs (who contributes a median of $1.5 million), got this done, and now you are really in the game.

You should be within the Series A range if you have your product in the market, (even if it is being driven by a single and not always scalable channel), and there is growing evidence of product/market fit, even if it is “not quite there””. You are probably looking to raise between $1 million and $10 million in your Series A.

What is absolutely critical to a successful Series A is to have the early adoption, growth, margin and revenue KPIs showing this early market acceptance and a promising growth trajectory, even if the absolute numbers are not so large. Without this monthly “traction”, you are not going to attract institutional investor interest at any valuation. You also need to have a credible plan for a business model to generate long-term profits, using the proceeds of the round to optimise the business.

Think of it this way: If your monthly KPIs are not showing early adoption, growth, margin and revenue, you will not be able to use the capital raised effectively. Throwing money at it at this stage will not solve the fundamental problems of adoption and early growth. The unhappy consequence of successfully raising a Series A before you are ready for it, is that you will end up burning the cash without the anticipated results, meaning that this will be the last round you will ever be able  to raise for your company.

Strategic investors are the venture arms of corporations in your sector (also known as Corporate Venture Capital or CVCs) or the corporation itself investing off its own balance sheet. Strategic investors tend to focus more on strategic fit and may be less concerned about “traction” metrics, and hence more likely to come in earlier than financial (VC) investors. Be aware, however, that it is quite common for strategic investors to co-invest, and will thus wait for a lead investor to set the terms.

We are often asked by clients whether it is better to slow down growth in order to reduce cash burn and get to break-even ahead of a capital raise, to increase the attractiveness and hence the valuation of the company. In our experience, the answer is emphatically NO as:

• Valuations pre-profit at this stage are indicated by revenue, growth rate and margin (and an EBITDA multiple is meaningless anyway), and
• Investors are focused on growth and traction when evaluating an investment – burn rate and “cash needed to breakeven” would be considered when evaluating risk, as a secondary consideration.

In summary, new investors would like to invest in a credible growth story with manageable risks. If you are not able to judge whether you have sufficient traction, you could tap into the experience of a transaction advisor or get direct investor feedback as to whether or not your company is ready for prime time.