Blue Angels, a portfolio-wide women’s development group at High Alpha, aims to help the women of High Alpha build deeper relationships, have a platform for intentional professional development, and be represented in the broader Indianapolis tech community. Each quarter, we host a professional development event on a topic around navigating careers and working in the startup ecosystem.
Our Q4 2019 Blue Angels event theme was Startup IQ: Lessons in Successful Fundraising. Men and women across the High Alpha Studio portfolio had an opportunity to learn what attracts VC investments at different company stages, hear founders’ fundraising experiences, and learn how companies set and delegate team priorities post-fundraise.
Our panel of speakers shared fundraising lessons from both CEO and investor perspectives:
- Blake Koriath, CFO at High Alpha
- Lindsay Tjepkema, Co-Founder and CEO of Casted, a B2B podcasting platform
- Eric Christopher, Co-Founder and CEO of Zylo, an enterprise SaaS management platform
Our panelists shared great insights on what investors look for in their potential investments and what it’s like to raise capital, from pitching to term sheets to post-fundraise. Here are our top takeaways from the day.
I. Investors evaluate startups on four main criteria.
Blake Koriath led a great conversation to discuss the fundamentals of venture capital and how investors evaluate startups. From pre-product-market fit to later stage growth, VC investors are typically evaluating four main criteria:
- Team — does the team have credible experience, complementary skill sets, subject-matter expertise, and grit/determination?
- Product — what customer pain point is the solution solving for and how is the product creating “stickiness” and user engagement over time?
- Market — how big is the total addressable market, what’s the wedge the team is addressing, and why now?
- Economic Model — what do the unit economics look like and how is the company scaling and gaining traction?
Product and market tend to go hand-in-hand as investors search for increasing evidence of product-market fit, or how well a product satisfies a strong market demand over time. If you’re interested in reading more about the key SaaS metrics investors look for at each stage of funding, from seed to Series B+, check out the SaaS Funding Napkin 2019.
Overall, we can see that investors at each stage of fundraising are looking at the team, business performance metrics, and how big the market can become over time.
II. Founders should invest in building investor relationships early.
Facilitated through a panel led by Blake, we had an opportunity to hear Lindsay and Eric share their experiences in fundraising. Having just raised a $22.5M Series B for Zylo, Eric recounts that finding the right investors is all about “building long-term relationships.”
After all, “investors want to see lines, not dots,” which signifies the importance of having regular investor check-ins early on in the relationship.
This allows investors to get a better picture of your company, who you are, and your team’s ability to execute via a series of interactions over time.
While investors evaluate startups on specific criteria, founders should also be actively ‘interviewing’ VCs to see if they are a right fit for them. Blake shared that the “best investors align their interests with the company and the team.” Other key considerations for finding the right investors include:
- Building a diverse investor network: It’s important to seek out VCs that have a variety of experiences, from operating expertise to those that have never built a company, but rather have broader pattern recognition experiences from having seen many different types of investment opportunities.
- Fundraising with scale in mind: As you scale your company, build relationships earlier on with VCs that have the capabilities to fund later stage growth rounds.
- Seeking out the potential lead investors: While pitching to different VCs, founders should consider asking investors about the last time they led an investment. This will give them a sense of that investor’s potential to lead an investment in their company. Once a founder secures a lead investor and a term sheet to validate their business, it is easier to get other investors on board.
Preparing for investor meetings and pitches requires time, effort, and the right mindset. The reality is that 9 out of 10 times, a founder is bound to hear a ‘no.’ Lindsay, whose company is early in the fundraising process, also shared that pitching requires the ability to get “investors excited about your vision” and notes the importance of being able to “read the room.”
While founders need to be able to execute well, being able to share your story is an equally important skill in the fundraising journey.
III. CEOs should proactively manage expectations when fundraising.
As a CEO, you are spending time not only on the business but also building relationships with investors and fundraising. As you prepare to raise money, it’s incredibly important to have the rest of the team focused on the business. In fact, Lindsay shared that while the majority of her time is spent fundraising, she leans on her co-founders, who are focused on building the product, bringing in more customers, and helping to grow the team.
Once funding is secured, there are increased expectations from leadership, investors, and the overall team that founders must deliver on. As a CEO, it’s important to remember that while raising a round is a milestone, the real measure of success comes from what happens next. Eric shared that as his team has raised their Series B, he is continuing to challenge his team to maximize their potential and live out their values of setting “big, audacious goals.”
Overall, fundraising is a pivotal aspect of the startup journey and lays the foundation for various stages of company growth. Hearing Blake’s investor perspective and Lindsay and Eric’s founder experiences helped us see both sides of the fundraising table and better understand the impact we’re all working to make in startups.
A huge thanks to our speakers and attendees for making our final event of the year a success. We look forward to seeing what 2020 will hold for the Blue Angels!
Amna Sohail is an Analyst on the Corporate Innovation & Business Design team at High Alpha, a venture studio pioneering a new model for entrepreneurship that unites company building and venture capital. She works with the team to source, vet, and develop new business concepts with entrepreneurs, VC firms, and corporations from ideation through new company formation.