Category Archives: Investments

A.B.F. – Always Be Fundraising

The CEO of any startup has three primary roles:

  1. Raising capital
  2. Setting the vision and overall strategy
  3. Hiring the right people

As anyone who has built and run a business from the ground up will tell you, being a CEO is not the easiest gig in the world. With so many different distractions pulling you in so many different directions, it’s easy to get overwhelmed by the minutiae of the day to day and lose sight of those three responsibilities.

To be fair, CEOs are responsible for more than just those three things. Each CEO has to wear multiple hats. But the fundamentals are still true.

Raise Money—And Then Raise More

I’ve noticed a pattern amongst entrepreneurs—even the good ones—where many of them forget the importance of the first responsibility listed above: raising capital. They forget that fundraising is an ongoing job that needs to be done regardless of the current cash balance.

Raising money is hard enough as it is. But by not working on it in between rounds, CEOs and founders make it that much harder on themselves. To be successful, CEOs need to take the A.B.F. approach to fundraising: always be fundraising.

A little maintenance goes a long way—just like heading to the gym on a regular basis is good for your health and fitness. Don’t get fat and lazy in between fundraising rounds—getting back into fighting shape (or fundraising shape!) is 10 times harder when you don’t have a base.

Some readers will almost certainly blow this off as easy-to-say/hard-to-do VC advice, but I actually screwed this up in the past too. Knowing what I know now, I wish I could go back in time and talk to my former-self. There were times when I was terrible about A.B.F. and other times when I was much better at it. The results of each approach were pretty clear.

I now see the difference between CEOs who take the A.B.F. approach and those who treat it as as a finite transaction. If you are not talking to and engaging investors between rounds, you are not A.B.F and you’ll pay later. When it’s time to raise (even in a “things are awesome and I need to fund the growth” scenario) it’s way more work as you are starting the relationships from scratch in many cases. The biggest difference is the fact that, with an A.B.F. mentality, whenever it’s time to raise more money—regardless of whether it’s a big up round or a “leap over the valley of death bridge”—the rounds get done faster, easier, and with more support from investors…and often on better terms.

Here’s a simple contrast between A.B.F and transactional fundraising: 2-3 hours a month woven into everything you do or 3-5 stressful months on the road herding cats during only two good windows per calendar year. Am I getting through?!?

Tips for Making A.B.F. a Reality

So how exactly can you become an someone who lives and breathes A.B.F.?

  • Maintain two investor lists. The first list should include current investors who you share monthly or quarterly updates with. The second list is for the investors who’ve passed at some point but left the door open. (You know the “if you were at YYZ in MRR we’d take a closer look, keep us posted” folks). Add new contacts to this list as you do the A.B.F. groundwork (networking, taking intros, etc.) This list becomes your target list for the next round.
  • Update the first list monthly. Be consistent—make it part of your routine. Put the asks at the top followed by the wins & metrics. The data should be telling a story clearly so there is no ambiguity about what is working and what isn’t. You might even find that they realize it’s time to add more capital to the business before you do. VCs are great at pattern recognition (for better or worse). This is low-hanging-fruit in terms of helping investors follow along as the chart moves up and to the right!
  • Solicit feedback and advice from the second list occasionally. You don’t want to be too annoying, but you don’t need to completely disappear either. In a previous blog post, I talked about the idea that when you ask for advice you get investment and when you ask for investment you get advice. Play the game and engage. Ask for feedback on metrics, messaging, and progress to ensure they’re thinking about you and your company.
  • Update your target investors every quarter. Put in some face time with investors on that second list. This can be a 20 minute video call. Just say top of mind if you can. Spread it out and mix it up. Personally, I’m way more likely to take a coffee meeting or a quick call to help an entrepreneur I know or to hear how things are going vs agreeing to be pitched formally if the company isn’t on my radar.  ­Asking for quick feedback on a high-level deck or just sending over news of a few wins will get the job done. The occasional business ask will test to see who is really paying attention. Put these at the top of the emails!

Are you the kind of CEO who’s always thinking about raising money but not doing it? Or could your fundraising game be enhanced? The sooner you adopt an A.B.F. mindset, the less time you’ll spend actually fundraising!

Resource – Getting from Seed to Series A

ICYMI, Techstars has launched a new live AMA series for Entrepreneurs which I’m super excited about. We are recording the AMAs for later consumption, so no need to worry if you can’t make the live event schedule.

I recently hosted a live AMA with Michelle Crosby of WeVorce and Todd Saunders of AdHawk (both Techstars Ventures portfolio companies) that was a continuation of the discussion started at CES 2016 around “Getting from Seed to Series A” which I then blogged about here.

There are so many great posts and resources already out there on this topic but here’s a quick hit list of items that popped up in the last week to add the to the reading queue.

Bookmark this post as I’ll keep adding links to new content from Techstars and others around our network on this important topic!

From Seed to Series A

NOTE: This is a repost from my blog entry over at techstars.com.

I recently moderated a panel discussion at CES 2016 on how to get from Seed to Series A and it ended up being great in a lot of ways. Topics were broad with some contrarian views on metrics and approaches. A few days later a Techstars CEOs posted a very relevant question on our email list and a great discussion ensured. I chimed in with some of the take-aways from the panel on that list and thought I’d share them here.

A quick note of thanks to my esteemed panelists who provided great input and kept me on my toes!  Anjula Acharia-Bath of Trinity Ventures, Nihal Mehta of ENIAC Ventures, Jenny Fielding of Techstars and Adam D’Augelli of True Ventures.

The question from the CEO was:

 

“In your experience, what ARR is required before approaching investors for a Series A? I’ve received a few suggestions, but most suggestions come from our existing investors (with bias).”

The email responses included some of the market-standard metrics like $100K MRR and double digit monthly growth as common targets.

Our panel went in a different direction on what it takes to get from Seed to Series A.  Part of the framing for the panel and the room was:

While getting rounds done isn’t going to get any easier in 2016, there is a lot you can do before going out to raise to improve your chances. As a group, we could not agree there was set number, or even one set of criteria that made any Series A round a given…

  • One of the themes that came out of the panel was that Series A is still about the overall story. Metrics do play a part, but the investors have to share the vision and the long term potential about a huge return at this stage.
  • Related to the point above, make sure you know who you are talking to and and how they like to make investments. For example, if you are talking to Bessemer, a prolific Cloud/SaaS investor, make sure your metrics are tight and you know their portfolio. If you are approaching True Ventures, know that they like to lead/co-lead the 1st institutional round.
  • One of my panelists thought that investor feedback of, “ your metrics aren’t quite there for a Series A” truly means “we just aren’t that excited but don’t want to say no yet.” A lot of VCs like to hold onto optionality by not saying no, but not saying yes either. In my experience a “no decision” is often a no and rarely changes. For what it’s worth, I got a lot of this with Filtrbox in 2009 when I was raising the A. I was at $70-80k MRR and growing just around 10% per month and was told, “if you were over $100k MRR this would be an easy round to do.” I think I heard this over a dozen times.  We would have been at over 100k by the time the round closed. At the time this was super frustrating because investors were using it as a smokescreen and that option value. Had I been growing 20-30% M/M for 6 months, I think it would have been different. Note that 2009 was a very hard time to raise money, but the market is turning in that direction more than where we were in 1H 2015.
  • Growth and solid G2M metrics are a bit of a proxy for gross MRR, but you have to have enough runtime with those numbers for investors to be comfortable they are real and will stick around. Two to three months of high growth might get the meeting, but everyone is going to want to see another chapter or two unless they fall in love with the business on the spot or have FOMO.
  • The Series A crunch is real in that there are many seed-funded companies but not a commensurate growth in Series A funds out there — what this means is that rounds are going to be harder to get done and truly based on fit between the fund and the company. Do your VC research deeply and make sure they are a fit on paper so you don’t waste time.
  • I heard anything from $50k MRR to $250k MRR for Series A on the panel. Not super helpful given the range but illustrates the dynamic a bit.
  • Every investor will tell you to, “Have eighteen months of runway, be able to run at break-even, and it’s about survival if the market gets really bad,” – pretty vanilla and predictable advice, but the reason for it is investor risk-mitigation. If I fund a company’s A round and the sh*t hits the fan, I want to know we can batten down the hatches and ride it out without having to put in more money.
  • “Build relationships, not pitches,” was discussed as well. The panel debated whether this was true for seed rounds vs. Series A. The gist of the debate was that many Series A round investment decisions can happen when the investor is in “advice mode” and the light bulb goes off.

Check out a recording of the full panel below:

 

If this is helpful and/or you have more questions about raising your Series A – let me know in the comments!

Our investment in Smart Vision Labs

I’m excited to share that we recently led the Series A investment in Smart Vision Labs, Inc. The company is based in New York City, and is changing the way eye exams are done with the world’s first commercially available, mobile phone based autorefractor, the SVOne.

svone

The Smart Vision Labs press release and TechCrunch coverage talk about the global market opportunity and need in detail, so I’ll suffice it to say we believe that seeing well is a right, not a privilege. We also love to see technology used for good and to improve our lives, so these two ideas together are very compelling for us.

When we first saw the SVOne and met the team behind the technology, we were inspired by the potential and the sophistication of the approach Smart Vision Labs has taken. The solution uses wavefront aberrometry, a technology typically found in large, heavy desktop autorefractors in your eye doctor’s office. The team at Smart Vision Labs has shrunk this down, connected it to the cloud and put it into the palm of your hand.  Its true convergence.

Yaopeng Zhou (CEO)  and Marc Albanese (COO) are passionate and mission-driven co-founders with strong backgrounds in the vision and optics space. They have a great story and a long history together. From the early days at grad school, Yaopeng and Marc have had a clear vision (sorry, had to!) around what was possible in this realm and have been pursuing it relentlessly. What started as an idea between two researchers at BU has become a groundbreaking product already in use around the world.  Like every great entrepreneurial journey, they’ve had their challenges and curveballs thrown at them. Yaopeng and Marc have handled all of it well and are monster executors – they just get things done! This Series A financing is another one of those milestones, and we are fired up about where the company is going next.

The entire team at Smart Vision Labs is great and laser focused on the task at hand, and I’m happy to also announce I’m joining the Smart Vision Labs board as a Director.  All of us at Techstars Ventures look forward to digging in and working with Smart Vision Labs on this important mission of improving eye exams and helping people the world over see more clearly.