Hey there, startup enthusiast! So, you’re looking to dive deep into the world of Series A funding? Let’s unravel the mystery together and prepare you for that all-important pitch. From understanding the basics to crafting the perfect presentation, we’ve got you covered.

Raising a Venture round is intimidating and there’s no single, right way to land capital. At Diadem, our core focus is on business fundability and helping great founders navigate this wild market by addressing the fundamental capital-raising questions that plague founders. 

Understanding the Basics of Series A Funding

Diving into the startup world is like jumping into a pool. Boy does that water look enticing, but it’s better to know the temperature before diving headfirst. For many founders, especially in today’s market, Series A requires a major temperature check. Uncertain macro conditions, skeptic investor sentiment, shifting valuations and slowing VC capital deployment have rendered today’s Series A raises to look quite different from 2021. Before crafting that killer pitch, you need the basics down.

Definition and significance of Series A funding

There’s no industry standard for what Series A looks like. At Diadem, we’ve seen founders with $2M ARR and founders with $7M ARR both go out for a “Series A” fundraise. Generally, Series A is the first big “foot down on the accelerator” for your company. The key here is demonstrating product-market fit.

You’ve identified your key customer demographics, sold them on your product, and have the historical traction to prove you know how to retain customers. Whether it’s “land-and-expand” within a couple dozen enterprise logos or a physical product retailers can’t re-order quickly enough because it’s flying off the shelves, Series A is the proving ground for showing investors that your business is working. This money helps you scale and grow. Learn more about Series A here.

The evolving landscape of startup funding stages

Like everything, the startup world changes. Funding stages today might differ from tomorrow. It’s a dynamic landscape, always in motion. Unfortunately, the burden of proof lies heavier than ever with Seed and Series A startups. Just a few years ago, there were dozens of news articles discussing how “Seed is the new Series A, and Series A is now Series B” due to the increasing average round sizes of Seed and Series A raises.

Post-pandemic later stage rounds saw inflated valuations and multiples leading to a massive market correction. So, the standards for investors have increased dramatically. In early 2022 we chatted with a number of FinTech founders that were raising Seed capital. The founders were experienced and had raised VC money before, so chats with FinTech funds were nothing new; however, the founders pointed out that the line of questioning coming from VCs for a “Seed investment” far more resembled questions they’d expect for Series A companies.

As it turns out those “Seed is the new Series A” articles from the pre-pandemic tech community were right for the wrong reason. VC capital deployment is well down YoY as are round sizes, but the companies still raising quickly are those Seed companies with Series A metrics, and the Series A companies with Series B metrics. Check out this evolving world here.

Series A valuations

Valuation is a sticky territory, especially in a market where VCs are far more focused on value than in previous years. There’s a myriad of factors that go into deciding valuation but it’s important to honestly evaluate key components of your company. For example, what is your revenue model? Is it true SaaS? Are you calling yourself an AI startup because you took a ChatGPT plugin off the shelf?

You probably aren’t going to get an AI multiple. Is there a service component to your business? Do you have to sell hardware for the product to function correctly? If you’re a tech-enabled service company with a platform, sorry to break it to you but most investors aren’t going to give you a SaaS multiple. Valuation is often a negotiation and as part of the back-and-forth, both you and the investor will present your logic and try to meet in the middle.

There are a lot of ways to do this but there is one way you should not try to justify your valuation – picking a competitor in your space and telling an investor “Well they raised $X at $Y valuation”. You’re not your competitor, nor should you want to be. Comps analysis is helpful for M&A, but not in VC. For more on valuation metrics guide Series A funding amounts, these numbers help investors decide. Dive deep into these metrics here.

Key Elements Investors Look for in a Series A Pitch

Investors are picky. They have to be, it’s their job! You can’t control an investor’s reaction to you, your company, or presentation. But you can ensure you hit on key points that Series A investors look for when meeting. There’s a ton to prepare for when going out on a raise and you’re a founder, there’s enough to do already. Let’s keep it simple with our top four signals in a good Series A pitch:

Your traction growth warrants this raise 

Investors love progress and institutional investors are not in the business of saving struggling companies or investing in companies that have been around a decade with minimal YoY growth. A strong business model? Revenue coming in? You grew 2x last year? That’s music to their ears. It tells them you’re on the right track. Learn what a proven model looks like.

A clear view on the road ahead

As we’ve covered, Series A is the time to show you have product-market fit. This pitch is not the time to explain to an investor that your company has a half dozen new ways to monetize, build sales channels, and grow. As a founder, you’re probably thinking, “Why wouldn’t I want to tell an investor about all the ways we can make money?” Here’s why – it’s hard enough to scale a great business with one revenue stream, let alone ten.

Founders are passionate and get really excited about their companies as they should; however, many founders fall into the trap of losing clarity in their story and how they’re going to reach the next milestone. It’s almost as if some founders are running two entirely separate companies at the same time and under the same roof. Investors want a clear vision and certainty. Offering up a handful of new, unproven products and services unrelated to your core offering is a rocky road.

Be ready to explain “why” an investor is a great fit

This is easier said than done, especially in a tough fundraising environment. Right now, plenty of founders have the view that “money is money” and we can’t necessarily blame them for that. If you’re raising a Series A, safe to assume you raised a Pre-Seed, a Seed, and maybe some additional capital in between. Many early investors (Pre-Seed / Seed) don’t require board seats or have minimal update requirements for you as a founder.

On the other hand, you can get your bottom dollar that the lead investor in your Series A is going to want a board seat and if it’s a “hands on” investor, be prepared to open up a spot in your office for visits from an operating partner. For this reason, it’s important to ask yourself when talking to a VC, “Is this a good partner?” Be ready to explain why if they ask or go even further and bake it into your pitch.

Are your previous investors doubling-down on their investment?

This point is often overlooked by founders but it’s a key signal for VCs. Participation from previous investors is a great sign that you’ve delivered what you promised, and your early capital partners want to increase their bets on you. Early investors are a great place to start for a raise. Don’t get so frazzled at the idea of raising more capital that you forget the resources you already have. Letting prospective investors know that you have ongoing support can be immensely beneficial. 

Crafting a Persuasive Pitch Deck for Series A Investors

Personally, pitch decks annoy me. Well maybe it’s not the deck that’s annoying, but the input you receive on how to make a deck great in the first place. So many people have a formula. LinkedIn heroes and Twitter investor types alike will happily tell you with exact certainty what slide order and color schemes make a pitch deck stand out. At Diadem, we’ve reviewed thousands of pitch decks.

Would you like to know the only correlation between all of the best decks that we’ve seen? Surprise! It’s simplicity. Einstein said, “if you can’t explain it simply, you don’t understand it well enough”. The complexity of problems, industries, and verticals vary but one thing remains true – if you need to type out a three-paragraph monologue on your pitch slide to feel like you’re getting the message across then something is amiss. 

Feedback loops: Iterating based on investor feedback

Feedback is gold. Use it. Iterate, improve, and adapt. But be mindful of what feedback you let influence you. It’s really easy getting caught in “feedback whiplash”. Everyone has an opinion and if you try including all of it in your deck, you’ll have an over-developed, conflicting, dissonant nightmare on your hands. Only you can decide what makes sense and is the best representation for your company.

There is not enough time in the day for you to make 100 versions of your deck and take a feedback census then examine which deck sits atop the statistical bell curve as “most acceptable”. Make mental notes of feedback and see if there are any major recurring themes. Beyond that, have confidence and conviction that you are telling the story the best way you know how. After all, it’s your story to tell. Find out why investor feedback matters.

Building rapport with investors before and after the meeting

It’s just like making a new friend. Except you want that friend to give you millions of dollars. Not a big deal. The truth is that investors are evaluating you as a founder pretty much at all times. That’s not a bad thing. That’s an investor doing what investors do. But it can make it pretty intimidating and confusing as to the best approach for forming relationships. Here’s an easy rule of thumb: what do people like talking about most? 

Answer: People love talking about themselves

Great relationship builders understand this principle. If you can get the investor talking, sharing, and laughing then there is a great chance that even if your offering is not right for them, they will walk away from the meeting liking you. More on the benefit of this in a second. Now there are other investors who are so busy and do so many calls, you better be ready to explain your business in 30 seconds or less. There’s no time for rapport. This is where the benefit of a warm intro comes into play. We specialize in the world of warm intro’s and the advantage of knowing a fund’s style before you even meet with them cannot be overstated.  

It’s pretty easy for an investor to smell a faker so I hope you memorized the entire starting lineup for the Boston Bruins after telling a VC you live and breathe the NHL just because you see a signed jersey hanging on the office wall. A great way to build rapport with an investor is to make life easy for them.

Don’t hide your company’s dirt under the rug (they’re going to find it regardless of what you do). Accept rejection with grace, be thankful. Try to meet in person. Video chats are great and convenient but offering up your time to go visit a nearby investor creates opportunity for a deeper human connection. One thing we love about VC investors is that when they like you, they don’t even have to like your business, but if they like you as a person, they will go the extra mile and find ways to help you even if they can’t directly.

Decoding investor feedback and next steps

Did you see that movie “The Imitation Game” with Benedict Cumberbatch? The one where he builds a machine that decodes secret communication transmissions during WWII? Well, if anyone can build a machine that decodes VC investor feedback, they would make a killing; although I don’t think they would get much VC funding into the business. Investor feedback can be illusive and it’s uncomfortable to ask for clarity.

Let’s cover a basic situation like a first meeting. Deal sourcers are talking to dozens of new founders at any given moment. This cycle of conversations continues for months or years on end. It’s impossible for an investor to give every founder detailed, thoughtful feedback especially if they are passing on a business after a first call. In our experience, the focus should be far less on content in a message and about timeframe in replies. Investors often move quickly when they’re interested.

If you have a call and the investor books a follow-up within the week – great! If after the first call it’s two weeks before an investor tells you that they’re “still reviewing internally” – not as great. You should always follow-up and maintain your professional persistence, but you can get a great sense for how an investor feels about your company from how quickly correspondence is taking place. 

Setting expectations and timelines with investors

If I had nickel for every time a founder told me, “I’d like to have this round closed yesterday”, I would have many nickels. Many nickels. Timeline is tricky since the market will always determine the speed at which a round closes. If there is real interest around your raise, it’s okay to let an investor know. Keep them updated with capital commitments and lead status. FOMO keeps the investment world turning.

What does not work well is manufactured FOMO and giving hard deadlines when there is no reason to do so. If you tell an investor there’s a ton of interest in your round when in reality you’ve just started conversations, the investor is going to ask for an introduction to those very real and definitely interested other funds that are further along in diligence. Learn more about setting clear investor expectations.

Who We Are

Diadem Capital is a fundraising marketplace for Venture-backed companies. With Diadem, founders quickly increase their top-of-funnel conversations and have the door opened to Family Office, traditional VC, Corporate Venture, and debt and non-dilutive relationships that otherwise would take months to develop. With a success-based fee, founders pay nothing unless they actually secure capital. That’s how it should be, right? No funding – no fee.

We talk live with every investor before sending dealflow to understand their criteria well beyond stage, sector, and geography. Diadem is building the largest warm introduction network for Venture in the world. Sound interesting? Let’s chat.