Get comfortable with the unknown.

Source: Lisa Warner Wardell

If, for the most part, you've proven you are the one to build this company, your insight and knowledge is deep enough that you might be able to transform the industry, you've proven that you can get others to back you (and stay with you), and your value proposition has been defended by customers who have used your product, then you might be ready to raise a Series A round of financing.

Series A rounds are generally geared toward early-stage, private companies. The size of the round can be very different. Similar to the drastic changes we've seen in seed round sizes, the same can be said for Series A round sizes, and they can range from 4 million to tens of millions of dollars. For many, this might also be the first institutional round of capital brought into your business. If you are enamored with the headlines, then you might think that the more money you raise the better, but this isn't the case. There are many factors you will want to take into consideration, one being your valuation and the other how much you need to get you to your next major milestone that will trigger your next round of funding. Before you approach a VC (or respond to one, if one has approached you), it's important to do your research. It's no secret that founders talk, but other investors talk too. I've asked founders as well as other VCs their thoughts on investors, and both have been very honest with me.

You also have to take into consideration whether you mesh well with your new prospective investors. Are they laid-back or formal? Do they enjoy the things you do? Or believe in similar causes that you do? What is a fit for one founder might not be a fit for you. Founders like us can sometimes feel like we have to take what's being offered to us, but I urge you to not fall down this rabbit hole, as it will only end up in disaster if you and the investor constantly clash—especially if they are a prominent investor on your cap table. When an investor decides they want to invest in your company they begin the courting process, but you have to think about whether you would want to work with them after the investment has been made.

I started raising a Series A round in the spring of 2019, but after a few conversations with investors quickly realized I wasn't going to get the valuation I wanted. So, I put my head down, decided to join Engage (one of the programs I spoke about previously), and began hiring the team I felt we needed to scale.

Then in late 2019, I knew it was time and started to meet with investors again. There was a lot we needed to do and we had only raised $2 million, which, for many reasons, proved to not be enough. So how do you know when your company is ready to raise a Series A? There really is no simple answer here. Most will say it's solely based on traction, but I know founders who have raised sizable Series A rounds with little to no traction. I know companies who have raised Series A rounds almost entirely off of hype. Founders who ask me this question want a definitive answer, or at least a few possible answers, to decide whether it's time. SaaS companies like ours tend to use metrics to make this decision. I also feel that investors are looking for how far you have come since you raised (if you have) a seed round.

We targeted an $8 million raise and began to seek introductions. This time we had better access to intro meetings and calls to investors via our seed investors. The accelerators we participated in came in handy when making introductions. Additionally, we decided that we were going to open up a second office in New York City.

Our opening up a second office in another city did not come as a surprise to my investors (thank goodness). They knew how committed I was to building the tech echo system in New Orleans, where I was from, but they also understood how difficult recruiting and raising subsequent rounds would be if I wasn't able to access the resources I needed. For me, a happy medium would be to continue to build our office in New Orleans, morphing it into a customer success office, while building out a second office in New York, where my R&D and sales team would sit. Note that this was pre-COVID-19, which created a world where teams now could work from anywhere.

Raising our Series A was a bit different than our seed round. I was a little better established as a tech founder than I was during my seed round, when literally no one knew me. I had investors that were not only willing to vouch for me but who for the majority were using their pro rata (see the Glossary if you don't know what this means). I understood what I needed to build out the company now more than ever. And I knew the team I needed to assemble if I were going to have any chance at being successful.

My Series A round was different, but what wasn't different was the due diligence we had to go through for investors looking to invest. However, this time we were better prepared; I mean really prepared. I feel preparation is one of the keys to raising a Series A. Simply put, as my grandmother used to say, your house needs to be in order. There's the initial commitment it takes to get your house in order and then there's the one to continue to make updates along the way until it's done.

Because I was prepared, I knew the majority of the questions that would be asked. I could turn materials around faster and usually answer questions on the spot. Nonetheless, diligence was still grueling. And now, after raising a small pre-seed round, a seed round, and a Series A round, I can say that it's different for us. It's harder. When I talked to my friends who were not women or Black, it became very clear to me that our diligence couldn't just be good enough or promising; it had to go above and beyond the call of duty. In some cases, I had to be able to answer the same questions in varying ways. There are a few lessons I learned about raising a Series A, and I share them here, in no particular order, as they are all important.

• Look for key characteristics in your company. You have a valid business model that can quickly be scaled and adapted according to the changing needs of your company, you have traction that shows a promising future, you're generating revenue at the scale you would like to see it, and the only way to grow faster and capture a larger market share is to raise capital. Though perhaps not perfect, you have found some product market fit with a product that customers have been using.
• Gauging the right time to raise. I wouldn't have guessed that I would be closing a Series A during COVID-19, but that's how life works. At any other given time, the timing really does matter. When I was raising my seed round, I started in late October. Big mistake—with the holidays approaching, you definitely don't want to start raising a round unless it's a given and you have located your investors or they have located you.
• Your company story has to only get better. I emphasized the importance of your narrative earlier, but it doesn't become less important. Now it's important to tie in your story with actual receipts and how your customers are using your product, how your team has grown, and how the mission has become even clearer since, say, the last time you raised capital.
• Make sure your pitch is solid. By now, you should have refined your pitch to where you could give it in your sleep. This is one area where I felt I really excelled. It was very clear to the investors in the room that I knew our space and was an expert in the sector.
• Deal room. Probably the most important part of raising capital in your Series A is compiling a solid deal room that includes your financials, key performance indicators, legal docs, and other documents needed to back up the pitch you just gave.
• Finding the right lead investor and accompanying investors is very important; after all, your lead investor is about to join your board.
• Getting the right deal terms really does matter. Everything from investor rights to the valuation of your company matters, and not all investors will be founder friendly, so you'll need to work with legal counsel to ensure that you get the best deal.
• Don't drag out the process. You will want to run a tight fundraising campaign. Ensuring that your deal room and pitch are solid will make it easier to do this. Yet, there is still no magic trick; it all depends on your product and a number of other factors. It can all have an impact on how long your process is, but you don't want to make it that much harder because you're scattered.

As you raise your Series A round, you will also be expanding your board of directors. We started this book discussing the differences between a bootstrapped company and a venture-backed one. One key difference is that if you raise capital, you as the CEO and the company are not subjected to external supervision. The board, of whom most are investors, has an ownership interest in the company. This can cause a lot of anxiety for first-time founders because well, like me, they are not used to the added layer of board management. The main functioning role of a board is to help guide the company through big decisions, which include everything from hiring and firing to determining stock options and approving budgets. If you are trying to decide who should be on your board, note that some of this will be determined for you because whoever leads your Series A and Series B rounds will most likely join your board. I started off with three board members and now, post-Series A, I have a five-seat board.

We hold our board meetings once a quarter and between board meetings I have one-on-ones with board members on various topics. For example, Will Hsu, one of my board members and a managing partner at Mucker Capital, has spent a considerable amount of time outside of board meetings helping us with product and go-to-market strategy. Kristina Montague, a partner with the JumpFund, has spent time advising on customer verticals and ideal customer profiles.

As the CEO, it's your responsibility to set the agenda and run the board meeting, which for us usually lasts around three hours.

As you can imagine, the more money you raise, the higher the stakes continue to get. With each round of funding you take on dilution to the company as well as add additional stakeholders to the company. This is why it's imperative that you get your investors right because they will have a controlling stake in your company as you build it. This was a huge adjustment for me, coming from building my first company without investors or a board, as I didn't have to take time to prepare for board meetings or requests from board members throughout the year.

Finally, you want to make sure that you maintain a healthy relationship with your investors. I'll say this again: it's not their job, nor should they be attempting, to run your business. They are there to help grow the business and provide expertise and help with decision-making along the way.