How to time your Seed or Series A round?
Are you thinking about growing or expanding your startup and you need funds to do so? You are likely to need capital and you should prepare yourself ahead of time. Here are a few tips to tell you when you’re ready to raise a new funding round whether it is Seed or Series A.
Don’t wait until your funds run out!
Remember that you need at least a 6-month runway. Pre-seed rounds can close quickly in only a few weeks, but Seed or Series A process can easily take 3 months from first call to closing.
- Consider that you will need at least:
- 2 weeks for calls
- 1-2 weeks for materials, presentations, approval, termsheet
- 4-6 weeks for due diligence
- 2-5 weeks for lawyers to draft shareholder agreements, etc.
Don’t forget that in December or August things slow down, so plan a buffer in for any potential delays around those periods.
Hopefully this doesn’t happen to you, but you would not want to find yourself in a position with less than a few months runway as it leaves you in a dangerous negotiating position if the investor wants to change terms knowing you don’t have any alternative.
Make it your advantage, raise when your metrics look good!
- For a Seed round, most funds want to see some revenue, a loaded pipeline, MoM growth, same for a Series A but bigger with and ARR ~£1m, a repeatable sales process and playbook.
Clarity is key, raise when you know how you will use the funds!
- Investors want to know how their money will be put to good use. Better have a clear plan with milestones for the next funding round.
- We often see companies that have grown revenue but not matured the company behind it. For example, there are entirely founder-led sales at series A stage where it is not clear that putting money into the business will produce more growth.
Research the state of the market and investors, raise when the market wants to invest!
- This is an external problem that you might have to navigate around or adapt, but as Cledara outlines<link to Cledara article on Sifted>, the market can slap you with a downturn. You need to be able to respond to this which is why it’s important to raise with some runway left.
- Investigate who you are talking to! Research what is the fund’s size and their usually deployed ticket size. Be careful of dormant funds that can make it seem as if they are investing when they are not. Check announcements or Crunchbase to see investment activity before you get into discussions with a fund to avoid wasting time and energy in investors with no money to invest in your startup.
It’s not all about the money, raising is about building trust!
- It’s impressive to see founders tell us ‘in X months we should have Y revenue and Z people’, then we chat again in X months and they were not far off. It shows that they understand their business and know how to scale it. While you may not need to raise yet, building key relationships is important and makes it easier on both sides. Remember to use these calls to ask questions such as ‘what will investors want to see to raise a Series A round’ or more generally for advice.
Having said that, don’t overdo it! DO NOT take investor calls 3-4 times every week! Take a call from a few key people you like and stay in touch, use that time to ask them what they expect to see at different stages. Investors don’t mind being told “we’re heads down, let’s speak in 3 months” so don’t make it a huge part of what you do between raises!
Debating on how much to raise? Check out our article.
How much to raise at Seed?
Regardless of what side of the coin you are on and how long you have been in the game, the answer is not obvious. In fact, when asking around, responses vary widely.
What to ask potential investors?
You have narrowed down the list of potential investors that you think may be a good fit with you, now it is time to meet them. Here is some guidance on what to ask them at each stage of meeting them.