Want to know how to survive the Series A crunch? During Vator's Venture Shift conference in San Francisco on Wednesday, a panel of venture capitalists discussed what they look for in Series A investments.
First up: What not to do.
"Me too-ism is a great way to not get Series A," Matt Ocko of Data Collective told an audience of entrepreneurs. In Ocko's mind, copycat goods and services are not a good investment.
"Do something really freaking hard," Ocko added. It doesn't have to be rocket ships a la Elon Musk, necessarily--just something that solves a problem others have overlooked, he explained.
And, according to Michael Neril of WIN, you will never raise a Series A without a defined product. A clear product-market fit, a clear revenue model, and clear customer bonds or market traction are crucial to catching an investor's attention--and wallet--he added.
Recipe for Disaster
Ezra Roizen of Ackrell Capital had another message for fund-raising entrepreneurs: Take your investor commitments seriously. In order to take investor money and agree to specific growth plan, he said, an entrepreneur has to believe that the path is realistic and achievable. "If you don't believe that and you take the money because you need it, [that's] a recipe for trouble," he cautioned.
Ocko echoed the sentiment; "Money is a loadestone around your neck and it carries a number of obligations [that] you have to be damn ready to meet."
He also outlined the three factors that investors look at to determine whether an entrepreneur can deliver on his promises.
"A baller team is a chit that buys you faith. Traction buys you faith. Deep, dark, amazing tech or anything that resonates emotionally with customers buys faith. This is the iron triangle--all three need to be present to some degree," he said.
VCs Are Your Friends (Yes, Really)
Finally, the panelists reminded their audience: VCs are not the enemies of entrepreneurs. Investors aren't looking to pull one over on you--most of the time, at least--they said. Which is something to keep in mind when negotiating a valuation for your company.
When entrepreneurs become convinced that VCs are their enemies--and strive to reach the highest valuation possible--they can actually damage their own prospects, Ezra Roizen of Ackrell Capital said. By setting unrealistic growth benchmarks, an entrepreneur isn't helping herself or her company--even if she thinks she's making out well in valuation negotiations at the outset.
"When you go into the A round, you are choosing a business partner [in your investor]," said Tod Francis of Shasta Ventures. "As you go to the next rounds, that's where you want to play the valuation up because [those investors] are going to be less involved."
He recommended that entrepreneurs raising Series A funding look at the rounds like a staircase, not a simple pathway from point A to point B. "Look at each round as climbing up the ladder, rather than trying to get it all at the A round," he concluded.