Month: July 2014

* This blog post is based on Natan Chosnek’s presentation at the Alternative Finance Conference on March 4, 2013.

In the first two parts of “The road to Round A” we talked about the difficulties in transitioning from the pre-seed period in a start-up life, i.e., “the age of innocence”, to post-seed and preparing for round A series – when “reality bites”. We also discussed the common pitfalls start-ups face when preparing for Round A.
We are now going to share our top 10 tips for overcoming these pitfalls, beating the odds, and succeeding in raising Round A funding. So here they are:
1. Keep your priorities straight: Your top priority after your first round is your second round. Ask yourself – what should I achieve right now in order to be successful in second round?
2. Involve your investors: Remember that your investors care about you meeting your goals as much as you do – so keep them involved. Investors should know about your success and your failures.
3. Be realistic, even pessimistic: Plan attainable milestones – ones that you can actually meet. Don’t try to impress anyone.
4. Be flexible: Be ready to change your goal and even your next milestones if needed. Remember that there are many more ways to miss a goal than to reach it.
5. Focus on the next “baby step”: Use your strategic plan as a guideline only – while focusing on your next milestone – the “baby step”. That’s where you’re going to be evaluated.
6. MVP and go: Create a minimum viable product with value – don’t become a product-centric organization. Your product probably has many features, stick to the ones that help you reach initial sales.
7. Look outside: Invest time in your viability within your ecosystem: Clients, partners and investors. Don’t get stuck in your office, look what’s happening outside. It will help you figure out where you should be heading.
8. Always work on your pitch: Don’t ever think your pitch is perfect – get at least one feedback a week on your pitch, and constantly improve work on improving it.
9.  VCs are just like customers: Study the VCs you are interested in for your second round early on. Raising funds is like sales, you should get to know your potential customers.
10. Product marketing is key: Think product marketing and not just strategic marketing. Make sure your product is your best marketing tool.

“This is the coolest time in a start-up life! You can do anything! You can change direction, and everything is open. The market looks huge, the potential looks infinite”, says Benzi Ronen, CEO of Farmigo, about the post-seed period. It helps to remind yourself about this, as you make your own mistakes. And good luck!

* This blog post is based on Natan Chosnek’s presentation at the Alternative Finance Conference on March 4, 2013.

 

So, you raised seed funding. You should be much happier now, only you’re not. You have more demands to manage. You have new goals. You have staff. You have investors, and they don’t act like angels anymore.

We hate to tell you this, but it may get even harder. We are going to share with you a few of the common mistakes start-ups make on their way to Round A.

“Start thinking about second round as soon as you have the term sheet for the first round signed”, says PlanetSohoCEO, Ron Daniel, who raised $8 million series A round.

Start-ups don’t think about A round early enough, knowing that the second round is coming, and that the chance to succeed is totally dependent on the type of investors they need to approach, and their ability to set goals that will work for second round.

For some startups, seed funding came too easy. There are many reasons for it. A CEO that completed series A round in 2012 told us that this made him vain when meeting VCs for his second round. He got kicked in the butt – which he rightly deserved, and he had to change his attitude in order to succeed.

Vanity is just one of many mistakes you cannot afford when raising A round. Another is increasing your burn rate, and not taking into account that raising more funds will take longer than you expected.

The third common mistake we call “digging your own grave”. Many startups set unrealistic goals to attract their investors during first round. “Ambitious milestones are a double-edged sword”, says Yevgeny Safovich, CEO of SphereUp, raising B Round these days (Disclosure: SphereUp is a Forabilis client).

Startups and investors should realize that it is better to succeed in achieving realistic goals, rather then failing impressive ones. We have seen a start-up with a very impressive seed funding promising investors hundreds of paying B2B customers within a quarter, and, not surprisingly, failing.

Another topic many start-ups struggle with is whether to try and take giant leaps, or focus on baby steps. Giant leaps sound more impressive and the right way to go – but is it really?

Sometimes taking a small step towards your next milestone is more important than working towards a huge – but futuristic – goal. “You can do without the revenue, but even if a small number customers talk to your value – you still have a chance”, says Sharon Wagner, CEO of Cloudyn.

The last common mistake we will discuss, and it is a typical one for Israeli start-ups, is falling in love with features – and the more, the merrier. Developing your product should not come at the expense of visibility and marketing efforts. Dropbox is a great example for a start-up that had just enough of a Minimum Viable Product to go to market, used it to learn from its first customers, and become a huge success.

In summary, there are many pitfalls on the way to Round A. How do you beat the odds? we will share our best tips for the road in part 3 of this blog post.