6 Strategies for Closing Your Series A on Your Terms
In late 2014 I sat at my computer staring at the screen with a dreaded pit in my stomach. My start-up, ZappRx, was only a few weeks away from running out of money. That panicked, foreboding feeling is something every new founder will understand. My company wasn’t in peril because there wasn’t customer demand — the business was in fact very healthy and growing. Things were in flux with the Series A round of funding that sat in limbo.
That was five months ago, and given that my company is alive and stronger than ever, you can guess that I closed that round and added an influx of $5.6 million dollars to help grow ZappRx. The entire process took 22 days.
I’ve been a CEO for three years now, and the funding round is likely one of the most maturing moments a new founder can go through. I learned a number of lessons during the process of our round of funding that will apply to any new start-up, whether it’s an early stage investment or a larger Series A.
Validate your market need.
Creating a sense of demand and urgency for your product is one of the best ways to hook an investor. In late 2014 ZappRx was closing customers who wanted us to deliver product by January 2015. At that point, we had started turning away customers and delaying revenue because we were understaffed and needed to hire more people to meet demand.
Investors loved hearing that we had so much demand that we needed to hire more team members. Before starting the fundraising process, think about what real examples you can show your prospective investors that illustrate there is high need for your product.
Show investors you are attracting top talent.
Do everything you can to show investors you have interest from talented people who want to join your team. Highlight that you have a very limited timeline to hire those people because top-tier talent moves off the market quickly.
At ZappRx, we had several seasoned engineers we wanted to pull from giants like Google. We were lucky that our new hires were unfettered from their golden handcuffs the same month that we modeled to rapidly expand the tech team. To appear thoughtful and strategic to your investors, you have to show that your hiring timeline is aligned with the growth of your customer needs. It shows that you’re executing a clear plan and not hiring at random.
To pique the interest of investors, highlight the competitive landscape. Show them the deal is hot and there are multiple funds vying to get into your company. Leverage interest from one investor to pique the interest of another. Create a sense of urgency in a lagging investor by telling them they are behind in their due diligence.
You must be 100 percent prepared mentally to walk away from an investor. Otherwise, they will call your bluff.
Choose the right investors.
One of the most important things you need to do is pick the right investors, specifically managing partners who believe in and share your vision for the company. For ZappRx, we needed investors who are patient because execution and timeframes in healthcare are highly extended due to various regulations. We needed our investors to understand that we are not a consumer tech company that can go viral overnight. Lastly, for ZappRx, it was important to find an investor willing to support me as a sole woman founder.
Before selecting your investor, you need to do your due diligence and understand what attributes are most important for you and your company. You should think about it like a partnership, or a marriage and picking the right, or wrong, investor can make or break your company.
Pick up a buddy.
You need at least one trustworthy and competent person to assign all important tasks related to diligence and the fundraising process, since you’ll likely be in back-to-back meetings with potential and current investors, customers and partners. My "buddy" was Regina, who I trusted implicitly. She was responsible for critical responsibilities that included tracking documents with the lawyers and getting last minute signatures from investors. When we needed a signature to close the deal from a current investor who was out of the country attending to a family crisis, Regina got in touch with him and secured his signature from overseas within 90 minutes.
Picking up a buddy who you can completely rely on for diligence related work will save your life.
Condense the fundraising time period.
The VC community is small and VCs generally talk to each other. We went from term sheet to wire in about three weeks to limit the time period over which information could leak. It helps create buzz if you have as many meetings as possible in a shorter time frame. Everyone will be talking about you at the same time.
Raising a Series A is a lot different than raising a seed round. You likely will deal institutional investors as opposed to angel investors. Their goal is to make money for their partners and firm. These investors will ask a lot more challenging and strategic questions that relate to your market.
Don’t worry if you find yourself staring at your computer screen with a knot in the pit of your stomach. We’ve all been there. Just focus on closing that round so you can get back to building a thriving business.