Preparing for a Series A funding round

Adam Hart
Investment Manager, YFM Equity Partners

After taking an idea from concept to reality – a journey that has perhaps seen numerous hiccups, borrowed money from friends and family, a few angel investors, and numerous years gone by – you find yourself with a great product, strong customer and market validation, and some real sales in the bag.

This might be the ideal time to bring on board a professional equity partner, whose funding and expertise can help to scale a business quickly, enabling you take full advantage of the opportunity that lies ahead.

This funding round, often referred to as a Series A, is a big step in a young business’ journey, and one that takes a lot of preparation to get right. Here are few key things to consider:

Are you ready? – Many professional equity investors at this level will need to see a proven concept that has generated strong traction. This means a working product, multiple customers and historical revenue (typically £1m+ of real revenue, i.e. not just pilots or proof of concept sales).

Get your timing right – A Series A round will be process driven, involving investor  approvals and due diligence investigations.  You must factor in sufficient time to close your financing round, making sure you have plenty of cash runway to see you through (at least 6 months). This can come as a shock to founders that have previously raised angel investment within a very short space of time.

Build your core team – This is a critical point for investors.  The team should be well-rounded, have relevant experience, and be able give the investor comfort that they can deliver the plan. It is also important to explain any possible gaps in the team, and any potential hires identified.

Know your proposition – Getting your story straight is essential. You need to be able to explain your business clearly and concisely, including your addressable market, the unit economics, and how the business is going to deliver the growth you are forecasting. This includes being able to explain who your competitors are, and why you are able to differentiate yourselves.

Get the right information together – You will need a thoughtful and well-reasoned business plan. This should have a good balance between including sufficient detail, without being too technical, and certainly shouldn’t assume the investor knows the details of your market or business. You’ll also need a financial model, which considers the key drivers and shows how these scale to deliver the growth (and eventually profits!). The founders should, of course, expect to have to justify their numbers and projections.

Understand your funding requirement – You need to be clear on what level of investment your business needs to deliver the plan, and what this is going to fund, as these will be key questions from any investor. You should build this in as part of your plan, based on justifiable assumptions.

Be realistic – Basing your plan on unrealistic assumptions is not helpful to anyone,  and will only result in uncomfortable conversations further down the line. Be confident that the story you’re selling is achievable.

Practice your pitch – Find a willing audience to practice on, one which can help identify gaps and weaknesses in your pitch. You must be able to articulate your vision succinctly and in plain English.

Finally, don’t consider raising funds as the endgame. Whilst financing is key to a business’ success, and a good equity partner can bring added value, it’s important to focus on building a great business as a priority, and only seek funding when it becomes a requirement to deliver the plan.

At YFM, we manage growth capital funds of c£150m, making investments of up to £10m into growing businesses. We have recently made investments in Arcus Global, Hutchinson Networks, Eikon and Ncam, and continue to look for further opportunities to deploy capital into exciting fast-growth businesses.

 

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