Series A Delays: 10 Tactics to Extend Your Runway

Raising seed funding is an exhilarating achievement for any startup founder. It marks the beginning of an exciting journey filled with opportunities and challenges. 

Recently Chon Tang – founding partner of the SkyDeck VC fund at UC Berkeley – shared some data from Carta showing that 90% of seed-stage startups can’t raise a Series A within the planned 2-year runway. It’s interesting to see that this is happening across the six main industries where VCs invested their seed money.

This means that, in today's funding climate, the path to Series A is becoming increasingly uncertain, with many startups experiencing significant delays in securing their next round. This new reality necessitates a strategic approach to ensure your company's survival and growth during these crucial early years.

Here are some actionable ideas and tactics to help you formulate a robust plan and navigate these new times where a Series A may not arrive for 2 or more years:

1. Extend Your Runway (new reality)

This is one of the most critical steps to ensure that your company can sustain itself longer without additional funding. Here's how:

Manage Cash Flow

Closely monitor your expenses and income to maintain a healthy cash flow. Avoid unnecessary expenditures and prioritize spending on growth-driven activities. Review your fixed costs and your spend on cloud, marketing, advertising, external agencies. Even contracts with retainers can be renegotiated.

Try to estimate the return or impact of each cost item. Make a first pass with all your team, don’t try to be accurate on everything, mark each item as green/yellow/red. Use yellow when the data source of ROI is ambiguous. Then make a second pass on the yellows, find better data and turn them into red or green. I’ve been there, it’s unpleasant. I regret all the times we did it too late.

Reduce Burn Rate

Look for ways to cut costs without compromising your core operations. Negotiate better terms with suppliers (their alternative is to lose you as a customer), consider remote work to save on office expenses (you can always rent some occasional space, gatherings are important – and small groups of 2-3 people can meet in casual ways). Eliminate non-essential services (including expensive “elastic” cloud systems that could move to virtual servers or bare metal).

You can redirect a portion of the savings to someone teaching your team to use collaboration tools in a more effective way (you’ll be surprised how these are underutilized). Or to someone helping you move to a cost-effective cloud infrastructure with automated operations.

Generate Revenue

Start generating revenue as soon as possible. Even small revenue streams can significantly extend your runway.

• Focus on revenue coming from your core offering, don’t be tempted to do custom development or projects leading your team far away from your business.

• Improve the UI to facilitate conversion and payments. Focus the whole team for one day on streamlining the path to payments. Ask them to become customers from scratch, record a video of their experience and highlight where they found friction. You’ll be surprised by suggestions coming from unexpected people. Check the improvements on funnel data (assuming you have a baseline for each funnel step).

• Prioritize upfront payments instead of monthly fees. Initially it may feel hard to ask for payment a year in advance. Experiment with a combination of free trial and discounts for annual contracts. The free trial gives you a great tool for prospect qualification: you’ll have usage data to identify the prospects that deserve your time for nurturing. If they don’t use the product enough at the beginning, keep them at low priority and focus your sales reps and customer success on promising prospects and early customers. I’m not saying a free trial is the way to go for everybody, but you need a low-friction way to qualify prospects that deserve “manual” nurturing time (assuming you applied all the marketing automation you can).

• If your sales cycle is still long and your product-market fit is farther away than what you planned, you can make an exception and run “paid pilots” with a quick invoicing cycle. Paid pilots are mini-projects focused on your target market, they use your product and tech, they may end up in sales but with a longer process (some prospects may not have the full budget this year or need some time to decide for the bigger contract, but they have some money they can spend, now). If a project is distracting for your team, pass (it’s poison money).

PRO TIP: If you’re using AWS/Google/Azure to serve your customers with servers on 24x7, you’re overpaying (yes, even with all possible pricing optimizations). Consider moving 24x7 production systems to rented bare metal or virtual servers with containerized software. On many occasions we’ve cut costs by 60-90% without missing much. This little secret is why cloud providers give so many dollars of credits to startups.

2. Optimize Your Business Model (good for old and new reality)

A lean and adaptable business model is essential for survival and growth.

Lean Operations

Implement lean startup principles to minimize waste and maximize efficiency. Focus on activities that directly contribute to your product's growth and market fit.

Product-Market Fit

Continuously refine your product based on customer feedback, not your gut feeling. Ensure it meets market needs effectively, as a strong product-market fit is crucial for attracting future investors.

Don’t get your dev team stuck on developing “big hope” features that take months. This will distract them from doing all the small things and experiments that make your product a good fit for the market that is responding well to your value proposition. When you find a feature that works (assuming you measure product usage at the right granularity), look at the higher-level value theme it belongs to and iterate on it. Good features unlock value and can be grouped under value themes. Most of the time, feature experiments are tools of discovery, very rarely a single feature has the effect you imagined.

Focus on dominating the current market segment, maximizing retention and upselling to happy customers. Visualizing a product-market roadmap (not just the product feature plan with dates) will help you and your team to go faster and more focused on what really works.

Whatever your startup religion, the key metric for product-market fit is customer retention. If you don’t have reliable retention data yet, use a proxy metric like the frequency of use of the few features that generate the key value for users.

For example, if you sell a personal financial planner, track the creation of personal goals and plans. Then track how consistent users are in executing the associated actions, typically every month. This gives you an immediate segmentation of users that are more likely to renew vs. users that need some help from customer success to recognize the value you're giving them.

If the whole team understands the north star metric and the associated proxies, they'll take small, daily decisions that will compound and drive the business KPIs where you want them. Team empowerment is vital for a successful startup, especially when you're running out of time and you need all heads on deck.

3. Build a Solid Financial Plan (always a good idea after a seed)

Planning for various financial scenarios will prepare you for uncertainties.

Scenario Planning

Develop financial models that account for best, worst, and most likely funding scenarios. This will help you understand the impact of different outcomes and prepare accordingly.

Reserves

Allocate a portion of your funding as a reserve to cover unexpected expenses or periods of low revenue.

4. Focus on Key Metrics (an evergreen, but vital in this new reality)

Demonstrating growth potential through key metrics will make your startup more attractive to investors.

North Star Metric & KPIs

Identify and track key performance indicators (KPIs) that are critical to your business. These could include customer acquisition cost (CAC), lifetime value (LTV), churn rate, and monthly recurring revenue (MRR). If you tried and are unhappy with the results, ask for the help of an experienced advisor or specialized companies like Digital Pills to find your north star metric and shape your business KPIs, product analytics and operating scorecards.

Unit Economics

Ensure your unit economics are strong, showing a clear path to profitability (not necessarily in the short term, profitability must be ingrained in your business model and must be evident through unit economics). Investors look for sustainable business models that can scale efficiently, thanks to the business model and your execution plus their money.

5. Strengthen Investor Relations (always important, but makes a difference in new reality)

Maintaining strong relationships with your current investors can open doors to additional support.

Transparency

Keep your investors informed with regular updates on your progress, milestones, and financial health. Transparency fosters trust and can lead to additional bridge funding if needed. Building trust takes time and cannot be done overnight, and being on red alert will not help.

Investor Updates

Send out consistent and engaging updates to keep investors engaged and excited about your journey. I see many startups extend updates to potential investors they meet on the way, outside fundraising campaigns. Every time you meet a potential investor, ask them to be part of your low-frequency, all-facts investors update. When you need them, they’ll know what you’re talking about.

6. Diversify Funding Sources (more relevant in this new reality)

Exploring alternative financing options can provide additional financial stability.

Alternative Financing

Consider venture debt, grants, or crowdfunding to supplement your equity funding. These sources can provide much-needed capital without diluting your ownership.

Strategic Partnerships

Form alliances with other companies that can provide financial support or open new revenue streams. Prioritize partners that help with go-to-market, lead generation or have existing customers in your target market. They’ll be happy to have something cool to sell. Assuming you’re good at doing sales enablement and have good margins to split with them.

7. Talent Management (evergreen)

Your team is your greatest asset. Manage it wisely to ensure productivity and morale.

Lean Team

Hire strategically and maintain a lean team focused on core operations. Avoid over-hiring and ensure that every team member adds significant value. Review each team member: knowing what you know today, would you hire them?

Flexible Work Arrangements

Offer flexible work options or equity compensation to conserve cash while keeping your team motivated and committed. Equity compensation is a great test to find committed believers. Keep in mind that not everybody has the financial space to trade cash for future equity, be mindful of each single personal context. Your team is your greatest asset.

8. Customer and Market Focus (evergreen)

Maintaining a strong focus on your customers and market can drive growth and stability.

Customer Retention

Prioritize customer satisfaction and retention. Loyal customers provide steady revenue and valuable referrals. Again, product-market fit is measured by customer retention and its proxy, a stable frequency of use.

Market Expansion

Identify opportunities to expand into new markets or niches that require minimal investment. Who could benefit from your current offering that you’re not targeting?

9. Prepare for Funding Delays (new reality, if you have product-market fit)

Aligning your efforts with realistic funding timelines will reduce stress and improve planning.

Milestone-Based Fundraising

Set and achieve key business milestones to demonstrate progress and reduce perceived risk for investors. This makes your startup more attractive when you eventually seek Series A funding.

Pitch Refinement

Continuously refine your pitch and value proposition based on investor feedback and market trends. Reframe your traction dynamics beyond revenue: surface usage metrics that anticipate retention, show improvements in funnel stages conversion, highlight the speed of your sales pipeline to show that you and your team are a good investment.

10. Mental Resilience and Adaptability (everyone in a startup)

Finally, your mindset as a founder is crucial to navigating these challenging times.

Founder's Mindset

Cultivate resilience and adaptability. Be prepared to pivot or adjust your strategy based on new information and changing market conditions.

Conclusion

While the journey from seed to Series A may be longer and more challenging than anticipated, these strategies and tactics can help you navigate the uncertainties and position your startup for long-term success.

By extending your runway, optimizing your business model, building solid financial plans, and maintaining strong investor relations, you can weather the storm and emerge stronger.

Remember, every challenge presents an opportunity to innovate and grow. Stay resilient, stay focused, and keep moving forward. Your next big milestone is just around the corner. But only if you’re aiming at it!

Ad maiora! 🚀