Raised a seed? This is how you prepare for the next round

You've hustled, refined your pitch, and secured that coveted seed funding. Congratulations! But as many founders quickly realize, that initial success is just the first step on a long and winding road.

The step from seed to Series A is often a harsh reality check. As one founder put it, "Our seed was super-fast and oversubscribed. And then we went into the (series) A and started getting interrogated about our numbers. It was like graduating from elementary school straight into college!"

The metrics interrogation

While the seed round focuses on initial traction, team strengths and market opportunity, Series A investors want to see the hard numbers about your net growth into the market. Are you tracking cohorts? What's your LTV, CAC, and net dollar retention? Can you articulate a clear go-to-market plan, connect costs to revenues and show a path to profitability?

If you can't speak that language fluently, brace yourself for an interrogation most startup CEOs are not prepared to handle. Generic rejections like "interesting, but not convincing" will start piling up, leaving you confused and deflated.

For a Seed, you give proof that you have initial traction: a valuable product that the founder can sell. For Series A instead, your numbers tell that you can generate fast, repeatable sales on a well-defined market segment.

The happy vibes trap

One common pitfall is misinterpreting those early friendly conversations with VCs as serious investment interest. The truth? VCs are motivated to build relationships early and get a proverbial "foot in the door" before you get ready and officially start a fundraising process.

But those warm fuzzies are no substitute for real traction. Too many founders draw false conclusions and start pitching prematurely, before hitting those critical inflection points that VCs actually care about.

Prepping for the main event

So what's a good course of action? First, resist the urge to fundraise too soon after your seed. Instead, relentlessly focus on building repeatable, metrics-driven traction for 9-12 months. Stay focused on the most promising market segment, the one that needs the least education and with the shortest sales/onboarding cycle.

PRO TIP #1: VC investing was down 25-30% in 2023, depending on region. In times like these, a great way to stand out is to build your own sales process and focus on a single market segment. Generating repeatable revenue is the most convincing argument that you're building a scalable business.

Disqualify leads that fall outside that initial segment. Resist the temptation to pursue them. Keep an eye on sales-focused team members: they will try to sign every type of deals (this includes you, CEO and co-founders!). Losing the focus on qualified leads will dilute your efforts and the metrics you’re trying to build.

Show me lines, not dots!

Identify the growth curves and milestones you need to reach, knowing that VCs want to see trajectories instead of snapshot values.

If you're still pre-seed, raise a larger seed amount – think $3M instead of $2M – to buy yourself that crucial runway. With 18-24 months, you can execute heads-down for a year before launching a focused fundraising sprint. Be aware, it may take 4-6 months to find a lead investor, go through due diligence, negotiate a term sheet and ultimately secure the money in your bank account. That's why you want to work with these two horizons after the seed: 12 months to get the metrics right and be proud of your Traction slide; a global 18-24 months runway to have time to negotiate with confidence and close the round.

If you focus on repeatable sales, you can also count on the best funding source ever: your clients! In case of disruption of the capital market, you can use revenue to further your runway until the skies clear and you can start your fundraising.

Ideal timeline: use seed money to build your growth trajectory. Use the rest of the runway to raise capital.

UPDATE (May 8, 2024) – The slowdown in funding started with Series B. Recent data tells us that this slowdown is impacting Seed and Series A too. So the ideal timeline should be shifted right by 6 months, at least. What to do? Build a runway of 24 months, have solid growth metrics after 18 months to stand out in fundraising, use revenue to support cash flow (i.e. don't grow like crazy, because the next cash injection may be delayed). Look at the chart below: even if pre-money valuations have recovered for Seed and Series A, the number of deals per quarter is now halved compared to 2022.

Remember, you never want to be the overexposed "shopped deal" that's been passed on by a dozen investors. Plan your fundraise tightly, and come to the capital market when your metrics can dazzle, not fizzle.

PRO TIP #2: After you get the seed, you'll keep meeting potential investors. Now that you know how to avoid the happy vibes trap, nurture those relationships so you can activate them when you're ready. Ask for their email and send them a quarterly newsletter to share your progress, key metrics and milestones. Use concise bullet-point updates, minimal text and metrics with % changes. This will make it easier to approach them when you'll start to raise for Series A.

The best time to raise? When you don't need the money. After all, as one VC wisdom goes: "You raise seed money on vision, team and passion. But you raise a Series A on the hard growth numbers."

So keep executing, perfect your story, and turn those lines upwards and to the right. The savviest founders know that seed funding is just the first gate – and that prepping for the Series A gauntlet is a full-time job in itself.

Ad maiora! 📈🚀