Article co-authored by Invigorate & Invigorate Advisor, Rich Kershaw.
If you’re a scaling business starting to think about your Series B raise, then you need to stop thinking about fundraising as a tick box exercise.
Because if you’re still thinking in terms of fundraising checklists and financial tick box exercises, then you’re not building to scale and you can kiss goodbye to any notion of growth or further investment!
Before we get into the nitty-gritty though, let’s clarify why fundraising checklists have been so important in your scaleup journey so far…
Every business has financial goals they want to achieve. For startups and scaleups alike, these goals are nearly always ambitious and need to happen fast! Fundraising is therefore important to startups and scaleups because of the rich potential it has to contribute to business growth.
For investors, investing in startup and scaling businesses is also an attractive option: relatively quick returns, the opportunity to invest in high-impact businesses, the potential to support the next tech unicorn… the list goes on!
However, when it comes to investing in startups and scaleups, this fundraising process doesn’t come about lightly. It’s a process fraught with ‘due diligence’, financial checklists, legal documentation, and much, much more. And it includes a long, hard look into the numbers, team and business model – past, present and future.
On the face of it, it sounds like an awful lot of ‘paperwork and process stuff’, and you’d be forgiven for thinking that it falls to your legal or financial team, be they in-house or outsourced.
But here’s the wake-up call – it’s not just ‘paperwork and process stuff’ and it doesn’t fall to your legal or financial team. You may have scraped through using this approach for your Seed or Series A investment, but for Series B and beyond, it’s a whole new kettle of fish.
In fact, the fundraising process at scaleup stage and beyond is best thought of as ‘continuous due diligence’.
Not only does it define how you intend to grow and scale, with past analysis and future projections, but it also takes into account your operating model, your go-to-market strategy, your tech stack and your organisational set-up. Along with an increased expectation of measurement, metrics and data points to back all of this up.
Well in advance of even considering a Series B fundraise, you’ll need to be acting on these things. This fundamentally requires a mindset shift that transforms an ad hoc process into a way of thinking about every part of your business. It’s a mindset that takes you from scrappy startup to viable, growing business, with all the processes, governance and infrastructure that requires too.
If it sounds like hard work, then it is! But then you wouldn’t be taking this path if you didn’t like a bit of hard work now and again, right?
At its core, the fundraising process is one that involves examining everything your company has built so far in terms of key financials, decisions, processes, intellectual property and planning.
Seed and Series A stages are largely focused on getting you up and running and achieving product/market fit, and it’s generally understood that plans will change as you develop your product and your team.
Most Series B fundraising is different.
By this point, you should have already worked through launch challenges and basic product development, and have a clearer picture of your future plans – you’re raising money to grow just as much as to innovate. Investors will therefore want to see a leadership team who know their operations are under control and are now thinking about how every decision affects their big-picture trajectory.
If you’ve made it this far in your scaleup journey, you’ll hopefully have considered how to grow and scale beyond your existing, (probably) direct route to market. You now need to turn that direction into a formal strategy.
And here’s a little secret – you can jump-start the process before you’ve so much as made contact with potential investors by asking two simple questions:
1) what’s your growth target?
2) who’s your audience?
Defining your growth target is fairly straightforward: if your growth strategy dictates how you’re going to grow, your growth target dictates why.
It’s entirely normal to found your company with a clear picture of “success”, but end up so caught up in the day-to-day that you lose sight of why you’re doing it.
It could be a high concept, like a MedTech startup aiming to improve clinical outcomes. It could be as straightforward as exiting for a specific cash valuation, or selling to the market leader for stock, and thus furthering the careers and finances of the founding team. But unless you’ve thought about why you’re doing what you’re doing, it’s impossible to know how your strategy will stand up under the scrutiny of investors.
The good news is though that once you’ve defined your growth target, growth strategy becomes easier. If you’ve got a good team on board (and on the Board!), then work backwards to develop an action plan to reach that target with the right combination of market research, relationships, product and business development.
The second question should be much easier to answer with a target in mind: who’s your audience?
But beware! At Series B, your audience aren’t necessarily your clients!
It will largely depend on your market, but here are a few examples that are often true for SaaS businesses and how different targets impact on their tech stacks too:
In each case, your growth route will be very different, and so will your product roadmap and technology architecture. Some of the options you may have already considered are:
If you’ve tackled any of these routes so far then you’ll know that they can also be entirely different beasts to the direct, local route in terms of contracts and the sales process. You’ll come up against all sorts of new legal requirements, procurement processes and incentive structures, some of which take a huge amount of time and resource to plan. And then many more months to start seeing a return on!
The good news is that if you’ve started along one of these routes, then you’ll have already begun your ‘continuous due diligence’ process by default, because the planning, documentation and mindset change that these all require are exactly what will be needed for your Series B+ raise.
Now that you’ve also set out your growth target, you can re-examine all your key decisions to see if you can eloquently justify them as essential to moving towards that target.
Here are a few examples of how this continuous mindset works out in terms of both growth strategy and tech impact:
So you see, the fundraising process, all those checklists… they aren’t about scrambling to get all your ducks in a row at a specific time when you’re fundraising, it’s actually part of your company’s DNA as you scale, grow and expand.
By changing your mindset and shifting from a growth strategy to a growth target, you can become much more focused on where you want to get to and how to get there. And by being super clear on your audience for the next stage in your journey, you can start to build out a strategy (and the associated tech stack!) that will stand up to the most rigorous of fundraising processes. Just remember, it’s a continuous process, not a mad two-week scramble before that first investor meeting!
You can find out more about our co-author on this article, Rich Kershaw, here.
Invigorate members can contact Rich directly here.
Non Invigorate members can apply here.
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