How to Survive the Series A Crunch
Sean Percival makes no secret of the fact that he struggled to raise a Series A round for Wittlebee, a children's subscription clothing start-up.
After stepping down from his position as the CEO earlier in May, Percival has given some thought to what he could have done differently. While the "Series A crunch" was not the entire reason for his failure, it was a major contributor, he noted in a recent blog post focusing on how to survive the crunch.
Here are a few things that founders of early stage start-ups, especially those between seed and Series A rounds, can learn from his experience.
Fundraising is necessary and takes time. "Fundraising is like the DMV--it's painful and annoyingly complex to navigate, but a necessary system to keep the roads moving," Percival wrote. According to him, "most founders are better builders than [they] are beggars," but let's face it, start-ups need funding.
Reflecting on his fundraising efforts, Percival noted that his two main mistakes were rushing the Series A and trying to "swim upstream." Fundraising takes time. Especially, when investors are no longer interested in what the start-up has to offer.
"When it comes to fundraising, it's very tough to swim upstream when the current changes. And the current changes often," noted Percival, advising that sometimes it's for the better to pause, regroup, and go back at a later time.
"Buy yourself more time and make the investors wait. They hate waiting, and as a result you may miss a train or two, but if you can emerge with a more sustainable or profitable business, your fundraising needs will quickly move from 'We need cash to pay rent' to 'We don't really need your cash, but we'll take it to grow even bigger.'"
Get your business sustainable, and fast. Sure, cutting costs is the most difficult thing a founder has to do, but becoming self-sufficient is more important than having snacks in the start-up's break room.
"I know we all want to create a great company culture, but if you need to extend your runway, that's a lot more important than catered lunches or other perks. A loyal team member is going to stand by you even when times are tough and the snack cabinet is bare," wrote Percival.
Be a leader. Don't keep the staff in the dark. There is no need to share everything with the staff, but sharing larger challenges with them will make it easier in the long run.
"Since those challenges would eventually require us to make cuts, it wouldn't have been exactly easy to hide, so I preferred to be overly transparent," explained Percival. "I tried to instill in my staff the understanding that high risk is a baseline for start-up life. As a result, they could embrace the uncertainty and take pride in overcoming it."
Vent appropriately. Series A is stressful. "The pressure is always on to appear rock solid, regardless of how tough times get," wrote Percival. To vent without being misinterpreted by the staff or investors, Percival created a parody twitter account, @SeriesACrunch, which helped him "get through a tough time."
One tweet from December 2, 2012 read: "Andreessen passed on us but they did invest in a message board for rap lyrics. Now I've got 99 problems and apparently a pitch is one."
Know when to get out. The stressful nature of Series A can take a toll on the founder's relationship with the start-up. However, admitting that you have fallen out of love with your company "would be a scarlet letter for fundraising," explained Percival, adding that founders should keep trying.
"Push to the end, knock on every door, and get counseling, but know that sometimes you just won't fall back in love with your start-up. If that's the case, it's really your duty to get out of the way," he wrote. "Intense love and passion is what builds great companies, and without it you really don't have a chance."
JANA KASPERKEVIC is a graduate of Baruch College, City University of New York, where she earned a bachelors degree in Journalism and Political Science. She covers start-ups, small businesses, and entrepreneurship for Inc. Her work has appeared in The Village Voice, InvestmentNews, Business Insider, and Houston Chronicle, among others. She lives in Brooklyn.
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