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FundersClub Series A Checklist

By Christopher Steiner and Boris Silver  •  Dec 6, 2016

With a decent idea, a good team and some grinding, many founders can put together a seed round of up to $2-3 million. Series A rounds, however, usually involve institutional venture investors that set the bar higher.

Building a company to the point where it can expect to get past the Series A crunch is hard enough, but landing the Series A, even with a worthy company, takes a lot of work and planning.

We've circumvented some of that work with this Series A checklist that can help a startup ready itself for the rigors and scrutiny that come with trying to raise this major investment. Operating as founders and investors here at FC, we’ve seen the Series A process from both sides. It’s this dual perspective that informs this guide. We also must give a nod to some of the excellent content already out there on this subject, like that from OpenView, that helped us form our conclusions.

Startups who believe their time has arrived should run through this checklist and see how ready they actually are. By ensuring most of these items have been seen to and prepared for ahead of time, founders will look the part and save themselves strain during what is usually an arduous process.

Founders should begin completing tasks within this checklist three months before beginning the Series A process with investors. Keep in mind that even well-executed Series A processes will require 3-6 months to complete. Think of this checklist as a foundation on which to build and run your process.

FundersClub Series A Checklist:

1. Investor deck (10-20 slides) and presentation:

At the Series A, investors want to deeply understand the narrative of the team, the company, and the market. You should have a point of view or a thesis behind what you are building and be able to communicate that in a clear way with supporting evidence. Some of the best companies were contrarian bets at the time they raised their Series A, and you should be prepared for skepticism by presenting a clear line of thinking. Identify which risks you have already de-risked in whole or in part and identify which risks you still need to address after the Series A.

When putting together the pitch deck, it's easy to go overboard and stuff it full of corroborating evidence with increasing levels of complexity that buttress the startup's mission and market. But one rule applies more than any other here: simpler is better. The content in the deck should be as specific and precise as possible —try to avoid vagueness. This will show a mastery of the space and that the founders have taken the time to research the market, competitive landscape, and other key areas of the opportunity.

In fact, Paul Graham recommends that founders keep their slides lean of words in general, limiting them to 20 or less. Deep dives, if utterly necessary, can be stuck in an appendix for investors who care to peruse them.

Overall, a deck should attack these things in a pithy collection of slides:

  • The current problem/process that a startup's product seeks to address - numbers are good here
  • The size of the market/problem (numbers)
  • How the product works/looks and how it addresses the problem
  • Profile of average customer
  • Current traction and growth - think of this as evidence to support your hypothesis
  • How the startup makes money or plans to make money
  • Competitors and why the startup can outmaneuver them

There exist lots of good explanations that offer granular advice on how pitch decks should be constructed. Here’s one of the best ones, put together by DocSend and covered by TechCrunch.

For further reference, here's Airbnb's first pitch deck, and here’s LinkedIn's Series B deck with a parallel set of explanations and advice.

As you start having meetings and having conversations, be prepared to iterate on both the presentation and the deck.

2.  Company Financials

Founders should have a tight understanding of their company’s costs and revenues. Potential investors will want to see full sets of historical financials, including:

  • Profit and Loss Statement
  • Balance sheet
  • Cash flow statement
  • Breakdowns of revenue types and sources (subscriptions vs. one-off sales)
  • Breakdowns of expenses by company function (admin vs. marketing vs. sales)

Investors will also want a comprehensive financial plan, and forecasts that show how equity round cash will be used as well as projected financial statements in a similar form to those listed above for historical financials. Startups should also project where they plan to break even, as many investors look for this, even if all parties understand that these things are hard to predict with any kind of certainty.

3. Business Metrics

This is where startups need to differentiate their own execution and approach to the market from competitors and market players. What approach have these founders hit upon that separates their company and product—and how does that show up in the numbers?

Many venture capitalists can be laser focused on so called key performance indicators, KPIs, when examining a startup's traction and business. This can especially be true for VCs who come from a more quantitative background.

Founders will want to prepare documents that include historical and projected values for metrics such as (if applicable):

  • ACV: Annual Contract Value

  • MRR: Monthly Recurring Revenue

  • CAC: Customer Acquisition Cost

  • LTV: Customer Lifetime Value

  • CAC: Customer Acquisition Cost

  • Gross Churn Rate

  • Margin

  • Active Users

  • Engagement Rate

If some of the values here don't fall within accepted, normal or encouraging (improving) zones, then it may be necessary to rethink the product or its sales approach. That's hardly a fun realization to face while preparing for what was supposed to be major funding event, but it’s a fact that would become all the more obvious as investors fixated on a bad churn or LTV number. It's better to short-circuit a funding process and address root problems with the product ahead of a raise rather than following through, trying to fundraise for nine months, and then quitting.

4. Legal Documents

A good rule of thumb for any startup, regardless of whether they're seeking or will ever seek a Series A, is to be obsessive about signing, tracking, and storing legal documents of any kind. This means documents such as:

  • Employee agreements
  • Incorporation documents
  • Board documents
  • Contracts, whether they're big or small, with freelancers, advisers or multinational companies

Founders should assemble a paper trail documenting the evolution of their company. No investor wants to get onboard with many unknowns or potential gotchas waiting for the startup and its equity holders. Poorly documented transactions and employment agreements have scuttled or delayed not only many financings, but also all kinds of exits and acquisitions.

Tending to these matters and chasing down arcane paperwork can be frustrating for founders who are loath to spend even an hour away from their business and the product, but it is a necessary task that helps ensure that all of this work doesn't go for naught.

Law firms can help with these jobs. They can supply boilerplate documents that are considered standard within the tech world, and they can look over contracts to ensure that a startup doesn't sign anything that could box it in in the future.

Not all law firms are created equal. Startups should choose a firm based on its expertise with startup financings, and perhaps within the startup's chosen field, especially if it is one that is rife with patents and and sensitive IP property. The easiest way to find a firm is through a simple recommendation, preferably from a mentor or founder who understands venture capital and tech. Standard practices and protections for both founders and investors constantly evolve, so it's important to employ a law firm that normally does a lot of this work.

A firm experienced in venture work will also be adept at negotiating the best possible terms for founders.

Some law firms that are well-known for their work in the space include:

  • Wilson Sonsini Goodrich & Rosati
  • Cooley
  • Gunderson Dettmer
  • Goodwin Procter
  • Fenwick & West
  • Orrick

5. Series A Lead List

Startups will want to prepare a list of potential lead investors broken down by firm and then partner. Founders should try and concentrate on VC partners whose interests and work areas overlap with that of their company.

You’re looking to identify firms and partners who invest in your industry and at your stage. Tools like CrunchBase can help you identify VCs who have previously funded companies with a similarity to your company:

Spraying queries willy-nilly will not be productive. Pinging a partner who concentrates on SaaS with a drone hardware pitch will not be effective, and it may also preclude the startup from garnering any interest from other partners at the firm whose concentrations actually align with the startup.

Founders should fill out this list as far as they can and then ask close inside investors for help in adding to it. It's these potential investors who may be the most receptive pitch targets, assuming that existing investors can make introductions. Being organized in identifying who and what firms to pitch will help founders save time and run a more efficient process.

Founders will also be able to take stock of their Series A raising efforts more easily by viewing the sheet, looking at who has been pitched, who has been receptive, who hasn't, and who has yet to be pitched. Tech companies tend to run things with data, and this process should be no exception.

Once the list is complete, founders should reach out to close friends, mentors, and investors in the space and see if any can make introductions to listed investors with which the founders have no current ties.

6. Practice

You’ll want to practice the pitch and presentation. Ask a founder friend, ideally one who has raised a Series A before, or an existing friendly investor for a walkthrough session. See what questions and concerns come up the most. Adjust and hone accordingly.

7. Customer References

VCs will want to dig into how well a product solves customers’ problems, and how invaluable it may or may not have become within their processes. Potential investors will want to hear from people who have extensive experience using the product and, if you’re already monetizing, customers who pay for the product. Among the things VCs will hone in on with customers:

For B2B companies:

  • Before using this product, what solution/process did you use in its place—and why is this better?
  • If you didn’t use this product, what others would you consider?
  • How difficult would switching to another product be?
  • Are there other things you’d like this product to do and would you pay for that?

For B2C companies:

  • VCs may want to talk to power users, and posit questions to them similar to those above.
  • VCs will be interested to know how users view competitors and how loyal they feel toward this product/brand versus another and why. They’ll be looking for ways in which this product can build a wall/dig a moat, if it can, and how its stickiness with consumers may protect it from a movement toward commoditization.
  • How did you hear about this product?
  • How often do you use this product? What keeps you coming back to it?
  • What did you use before this product—what would make you use this more, if possible?