So you want to raise a Series A

Kleiner Perkins’ Bucky Moore shares sector-agnostic advice

During a seed funding round, a founder needs to convince a venture capital investor on a vision. But during a Series A fundraise, napkin-stage ideas don’t make the cut — a founder needs product progress, numbers, and revenue (or at least a plan to eventually generate some).

In many ways, the stakes are higher for a Series A — and Bucky Moore, a partner at Kleiner Perkins, joined TechCrunch Early Stage last week to give founders tactical advice on the process of raising one.

Moore spoke about storytelling over semantics, pricing, and where his firm sees itself “raising the bar” for startups.

Here are a few key points; a full video and a transcript of the entire conversation are linked at the bottom.

Explain to investors why you are raising now

More companies will raise seed rounds than Series A rounds, simply due to the fact that many startups fail, and venture only makes sense for a small fraction of businesses out there. Every check is a new cycle of convincing and proving that you, as a startup, will have venture-scale returns. Moore explained that startups looking to move to their next round need to explain to investors why now is their moment.

The way I think about “why now” is [that] it is an opportunity for you as a founder to convey a unique insight and understanding of your market opportunity, the history of the space that you’re in, why companies have succeeded or failed in that space, historically speaking, and what are the known challenges from a go-to-market perspective; what headwinds will you be up against at a macro level. These are all things that I think people like me get really excited about when hearing unique insight from founders, because it suggests that they’ve really studied their market opportunity, and they understand it. (Timestamp: 2:19)

This answer made me immediately think about when and if a founder should talk about their competition. Is competition an indicator of how important your focus is, or does it show that it’s not very defensible? Moore explained his take:

I think what’s more interesting is not so much that there is an existence of a competitive landscape that’s growing and that those companies are being built by smart people, but a clear sense of why smart people are flocking to that opportunity. So again, I think that kind of comes back to more of the foundational conditions in the space that you’re in and what’s happening at the moment that’s driving more interest, driving more opportunity. So rather than trying to identify competition as a “why now?”, I do think it’s more of a kind of a first principles approach to asking why there’s competition suddenly arising in a space that typically gets you to the right answer. (Timestamp: 5:23)

A case-study from Figma on how to be a storyteller

The other part of the other part of the “why now?” question for me is the unique insight that your business is built upon. Every company has one. One example… is Figma. For those of you who haven’t heard of it, they figured out how to actually bring in non-designers into the design process, and make that process much more interactive — one that the entire company can get involved in. And so coming back to this question of “why now?”: What they were telling the market when they were getting started was that designers were becoming more in demand than ever before. As more and more companies kind of embark on this so-called journey of digital transformation, that’s synonymous with a need to produce digital products, to digitize the experiences their customers have with their products, and to build software to realize inefficiencies in their business. And to build all those digital products, one needs to design them. And so it just felt like the age of design. And large companies were embracing building out large UX design teams for the first time, whereas previously, those large teams have been limited to largely internet and software companies.

They started to research inside of large companies what the engineer-to-designer ratio was, and what the data suggested was that, that ratio of designers to engineering was going up, which means again, the market opportunity is getting deeper and broader at the same time. So that was part of the “why now?” that I think is a really a really clear example of something that gets an investor pretty fired up during a Series A. Obviously, they’ve gone on to have a lot of success, and I think that original hypothesis of “why now?” has proven true. (Timestamp: 2:58)

How to price your Series A round

In a world of $200 million Series A rounds and $10 million seed rounds, the biggest question that some founders might have is how big of a raise they should pursue. The actual size of the check that a founder is going after might change throughout the fundraise process, but when you walk in the door, what should you have in mind when the world is your oyster?

Ask the entrepreneur, what do you want your company to look like 24 months from now. And 24 months is not necessarily locked in as a timescale, but I do think it’s a fairly conventional one to anchor on when you think about a fundraising period. Meaning over the course of the next few years, how much money you really need to satisfy your strategic objectives of the company?

So, we start there and kind of work backwards. Sometimes those are revenue milestones, sometimes that’s the number of customers, sometimes it’s product maturity, sometimes it’s addressing positioning in the market and trying to tell your story more clearly and build awareness around that story. If you start there, and you start to solve backwards, what you eventually get to is, “So I’m going to need more people in each of these functions that are responsible for delivering on these objectives.” And those functions are going to have budgets associated with them that aren’t necessarily related to headcount. And what we start to see very clearly then is that there is a dollar amount associated with all those things that need to happen, relative to the capital at your disposal today, that I think at least starts as a good baseline for what that next round off will look like. And then, of course, there’s an argument to be had about whether one should leave 6 to 12 months of buffer should things take longer? Because they usually do.

My point is that I think starting from what you want your company to look like when you have to go and raise money again, from 18 months, 24 months or longer is a great place to start. And I think it really does clarify this question of just how you should go about determining the amount of money you should go raise. (Timestamp: 19:26)

I think showing up with a dollar amount that is well reasoned conveys that you understand your business and its needs on a go-forward basis, but also that you have a clear sense of the strategic objectives. So I would encourage you all to come in having done some work in that area and have a point of view. That being said, I think all of us as investors appreciate when founders show up with a collaborative approach to say, “Hey, here’s what I think, but if we were to work together, this is something I’d certainly want your input on.” I would encourage you all to just kind of walk into those conversations with an open mind. But have a point of view on something like that. It’s just so core to the success of your company. (Timestamp: 21:38)

You can find a transcript of the entire conversation here.

You can also check out other sessions from Early Stage here.