Much has been written about the Series A crunch for angel-backed companies – a global problem by no means restricted to Israeli early-stage companies. In an August 2013 blog, Jeff Grabow of Ernst and Young, referring to the situation in the USA, writes “…Some say up to 1,000 companies (with up to $1 billion dollars in angel investment) won’t be able to get their next round of financing and will either cease to exist or become acquired…”
At Incentive, Peregrine’s technology incubator, we spend a lot of time and effort helping our companies positions themselves for their Series A round. We speak to VC’s to understand what KPI’s they would like to see in our specific companies and we work diligently with the companies to achieve those KPI’s.
Strong KPIs (Key Performance Indicators)
Follow-on investors are going to be looking for measurable evidence that you have a good product-market fit. You must leverage your angel seed investment well so that you reach the Series A stage with:
· Initial revenues from paying customers. For example, an SAAS company should be able to
show monthly revenues on the order of several tens of thousands of dollars.
· A strong growth curve in terms of customer/user acquisition
· Evidence (where relevant) that your users are active and engaged with your product
· Low churn of customers
Sustainable Growth and Scalability
It is not enough that you have acquired initial customers/users in organic spurts sparked by short-lived buzz such as positive coverage by a blogger or winning an award. You must have a believable, scalable go-to-market strategy that clearly targets a significant market sector and points to consistent, sustainable growth, with clear evidence of a low churn rate. You should also be able to precisely quantify both the cost of acquiring a new customer as well as customer lifetime value (LTV).
Plan Ahead, Allocate Resources
Your Series A round is inevitably going to take longer than you think, and it is going to be a fulltime (and more!) job. Try to build up your reserves through convertible loans and/or small seed+ investments so that you can allocate the required resources and still get to the Series A finish line with a little fuel in your tank. Make sure you can demonstrate a strong, attractive product-market fit at least 6 months before your seed money will run out…
Never miss an opportunity to leverage pitch events, competitions, significant business achievements, etc. to create as many points of contact as possible with your investor pipeline. You are competing with many other companies for those investment dollars and you must position yourselves as that company which is on the cusp of disrupting its market with a real product that solves a real problem.