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You’ve successfully guided your startup beyond the Seed funding stage and you’re ready to begin the Series A venture capital stage.
You have a proven product, a solid base of users, and a steady revenue stream.
This could be the perfect time to make a push towards exponentially and quickly accelerating your growth with the help of a round of Series A venture capital.
In a recent blog post of ours, we talked about preparing your business for the fundraising process and some of the key considerations that await you.
Once you’ve decided to take that leap, one of the most crucial steps in the process will be deciding with which venture capital firms you would like to partner.
How do you recognize, target, and then successfully attract the right VC firm for your Series A venture capital funding?
The fact that you’ve managed to get your company this far means that you’re already somewhat experienced in dealing with investors and know what you’re looking for in a financial partner.
However, finding the right venture capital firm for your Series A offers a unique set of challenges that many founders have not yet faced.
Early-stage businesses will often raise thousands of dollars from angel investors, partners, and private individuals.
However, VCs are often ready to invest millions of dollars into businesses they believe in. As of 2019, the average Series A startup is valued at $22 million, and the average funding amount is around $13 million.
But no matter how important a factor money is when raising Series A venture capital, it’s certainly not the only factor your business should be taking into consideration when choosing a VC.
It’s also important to consider the value an investor brings to the table beyond their financial support, as their network and advice may be as crucial to your success.
When searching for the right venture capitalist to team up with, businesses ultimately need to think about the entire package they bring to the table; not just the amount of money offered, but their core competencies, values, and expertise as well.
No matter the circumstances, you’re going to have to go through a similar thought and evaluation process when choosing a VC partner; whether your business is a hot commodity and you have your choice of several top venture capital firms or you’ve only received a few offers from local investors.
In this article, we’ll cover some of the obvious and not-so-obvious factors to consider when trying to identify the best investors for your Series A venture capital funding.
Let’s take a closer look at where to look for potential VCs, how to identify good fits, and what to consider when determining who to target.
Helpful Online Resources
As we noted in our earlier blog post about fundraising considerations, talking to your Seed investors and partners and networking with peers will always be considered best practices when trying to identify VCs that might be good to target for your Series A venture capital fundraising.
Thankfully, a great selection of tools and sources is also available online for entrepreneurs looking to find and identify VCs relevant to their needs.
These tools can help you create a preliminary list of companies you feel would be the right fit for your startup and provide you with insight and data needed to cut that list down to a manageable number of investors you’ll be able to contact.
Let’s break down a few of these tools and talk about their key features, strengths, and weaknesses.
Crunchbase Pro – Crunchbase is dedicated to profiling startups and their deal histories. You can also find detailed information on not just funding, but also mergers and acquisitions, leadership positions, and industry news.
This can help you get a feel for what businesses that are similar in terms of industry and funding stage are doing.
You can also find detailed profiles for VC funds, accelerators, and other investment entities. Crunchbase offers extensive ranking lists of top VCs on their website as well.
The Pro version gives you access to advanced search and tracking tools that make Crunchbase much easier to use effectively.
CB Insights – CB Insights analyzes massive amounts of data on venture capital and startups and offers robust marketplace reports and trend predictions.
It can help you take a deeper dive into your industry as a whole but also get detailed information on your competitors and the VCs that you’ve identified as a preliminary fit.
LinkedIn – LinkedIn is the world’s most popular business-centric social network and allows you to search the “Venture Capital & Private Equity” industry and compile a list of VCs who feel like the right fit for your goals.
It’s also great for networking with peers and VCs, but also for learning about VCs and partners by following them and seeing what types of things they like to share and talk about.
Mattermark – Mattermark was envisioned as a data platform for VCs to quantify startup potential. It can provide useful insight into how VCs view your company and where you hypothetically rank by their startup standards.
Gust – Described as Match.com for startups, Gust’s software matches your company with the VCs that would be the best fit according to your criteria. While detailed research and due diligence are the best ways to find the right VCs for your Series A, the suggestions you can get from a tool like this are definitely worth checking out.
Key Considerations When Evaluating VCs
Let’s talk about some of the many factors you should consider when analyzing and evaluating which venture capital firms you would be interested in working with most before you start contacting your favorites and eventually start pitching to them.
Industry And Product Fit
Most venture capital firms have a specific focus in terms of the types of companies they prefer to fund.
That’s why it’s usually a good idea to create a selection of VCs that are likely to be interested in your company, both in terms of industry and product.
Look for firms with a strong track record of investing in your industry and those that have previously worked with companies similar to yours in terms of revenue growth, user base, and product fit.
While it is true that most serious VC funds have made a concerted effort to diversify their portfolios over recent years, doing enough research should enable you to get a good idea of the types of companies they are looking for across a variety of industries.
Many VCs focus on specific investment stages (Seed, Series A, Series B, and Series C) when determining which startups they want to fund.
You’ll want to find a company that is actively looking for deals with companies in your stage and prefers working with Series A startups to increase your chances of getting their attention.
Are you and your potential investors on the same page regarding where you are headed and where they want to go?
Do they agree with what your product roadmap looks like or do they think that your potential lies in moving in a different direction?
And if you are not in complete alignment in terms of where you see your company three years down the line, do you feel confident enough in their vision and track record to take their advice?
Not all VCs have stellar reputations throughout the startup ecosystem.
The good thing is that the startup space is relatively small and tight-knit, meaning that you’ll be able to vet potential partners fairly easily via networking.
Don’t be afraid to contact founders who have previous encounters and dealings with certain VCs and try to gauge how they feel about their relationships and experiences.
If at all possible, try to talk to founders from their portfolio whose companies didn’t reach their goals.
Relationships are easy when things are going smoothly, dig deeper and try to see how these VCs respond when the sailing isn’t as smooth.
Connections and Expertise
The funds that you’ll receive from an investor are just the tip of the iceberg. What’s equally important to your growth is that you’ll be able to tap into their network and expertise.
Having someone who has massive experience helping startups successfully scale in your corner and with a vested interest in your success can be a massive help.
Also, if you already know that you are going to be pursuing Series B and perhaps Series C funding later down the line, make sure you are looking at VCs that have a good track record of working with startups that have been able to secure further funding fairly easily and quickly and from either the same or equally well-recognized financial institutions.
If following your vision is very important to you, then you need to find a VC that has a history of trusting its portfolio companies and providing them with the right support structure.
Earlier discussions and inquiries should be able to give you a good idea of whether the VC is completely on board with your mission and vision.
There needs to be balance between having a board that trusts you and your vision but remains vigilant about giving you advice and making sure that you’re always on the right path.
No one wants an indifferent VC partner.
When analyzing a term sheet, don’t just focus on the evaluation and the sums offered, a closer look at the term sheet can tell you a lot about the VCs that sent it to you and their intentions.
Is it a straightforward, easy-to-understand offer, or are there many small-print and unclear clauses?
Does it look as if they are trying to squeeze you into accepting something that you’re not comfortable with?
If you feel overwhelmed by the initial paperwork of the Series A venture capital funding, don’t expect things to get any less stressful down the line.
Location matters. From initial meetings to quarterly board meetings, discussions of new rounds, and potential exit options, every phase of funding and growth works better with ample facetime.
Also, VCs prefer to invest locally. It’s no surprise that the majority of both startups and investors are highly concentrated and that more than 80% of venture capital investments are distributed in just five cities; San Francisco, New York, Boston, San Jose, and Los Angeles.
Businesses operating in different regions have to rely on the remaining 20% of investments.
However, VC firms are becoming increasingly open to investing outside their regions, so don’t hesitate to contact companies outside of your area if you feel you are a great fit otherwise.
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Series A venture capital funding is a big deal. It involves millions of dollars, long-term partnerships, and, hopefully, will lead to exponential growth for your startup.
Obviously, more money at better terms is always the goal when seeking Series A venture capital funding, but sometimes it can pay off to sacrifice a bit of equity or burn money to work with precisely the right people.
Expertise, credibility, and alignment are all just as important. Remember, these are long-term relationships; ones that should not be rushed into.
If you’d like to find out more about what comes next in this journey, keep an eye on our blog over the coming weeks and months to learn more about the following topics and more:
- Create a Perfect Pitch Deck For Your Series A Venture Capital Funding
- Examples of What a Series A Venture Capital Term Sheet Looks Like
- Negotiating and Closing Your Series A Venture Capital Round
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