In today’s episode, Steli and Hiten talk about raising a series A round. Tune in as Steli and Hiten lay the groundwork for what your company should already have in place prior to doing a series A round. They discuss what is expected of you from an investor’s perspective and give quality advice to prepare you for that next relationship with the right investor.

Time Stamped Show Notes:

  • 00:03 – Today’s episode is about how to raise a series A round
  • 00:27 – Raising money is a highly, in-demand topic
  • 01:32 – What should a company have in place to start a series A round?
  • 01:50 – If you are raising a series A, you should have already addressed the risks
    • 02:00 – Different industries take different risks
  • 02:20 – If you are already an experienced founder, the first round you raise can feel like a series A round
  • 02:36 – Money given at this point is for the growth of your business, so things should already be in place
  • 03:38 – Startups may have had an easier time raising seed funds
    • 04:42 – Founders who have raised seed funds easily found that raising a series A is harder and often do not know what to do
  • 05:30 – Operate your business as if you are raising money all the time
  • 06:01 – Hiten shares a story about a founder who loves doing pitch decks because it gives him clarity regarding his business
  • 06:45 – It is important to run your business in a way it can be presentable to an investor at any time
  • 07:21 – The expectations of investors are different for every stage of your business
  • 08:27 – In Episode 188 regarding pitch decks, the emphasis of the episode is to NOT LIE to investors
  • 09:10 – DoGo is Hiten’s new project where you can get feedback for your pitch decks for free
  • 10:31 – Getting and giving feedback for pitch decks can be difficult
  • 11:25 – Steli talks about what his first pitch deck looked like and how he had difficulty asking for feedback
  • 12:40 – You want to ensure that you are ready when you are going to do a series A
  • 13:54 – There are some things about the series A that go beyond just the money
    • 14:06 – You need to be willing to give up one or two board seats
    • 14:30 – Hiten and Steli will be talking about the board in a future episode
  • 15:10 – Make sure you have a good relationship with an investor, where you can be brutally honest with one another
    • 15:42 – Create a space that allows you to listen to one another  
  • 16:01 – Investors are giving YOU money so that you can make THEM money
  • 16:40 – You have a commitment to the investor to grow the business
  • 17:09 – Investors will make you feel like they like you, but they are professionals at “dating” founders and you should keep your emotions in check
    • 18:00 – The core relationship is the business relationship
  • 18:46 – Steli’s tip for today’s topic: Find a healthy balance between believing in your business and being brutally honest about the risks and weaknesses
  • 19:30 – If the investor does not like the risk, they are not the right match for you
  • 20:21 – Hiten’s tip for today’s topic: Don’t get caught up in an investor’s brand, focus on what they can do for your business and your relationship
  • 20:54 – Go to iTunes and give us a rating and review
  • 21:03 – Connect with Steli and Hiten on Twitter
  • 21:08 – End of today’s episode

3 Key Points:

  1. Raising a seed or pre-seed round is very different from raising a series A as your business will be in different places.
  2. Operate your business as if you are raising money all the time.
  3. It is important to have a good relationship with your investor where you can create a safe space to be brutally honest with one another.

Steli Efti: Hi everyone. This is Steli Efti.


Hiten Shah: And this is Hiten Shah, and on today’s episode we’re going to talk about how to raise a series A round.


Steli Efti: Whoa. So far, I think, you know, raising money has always been a highly in-demand topic for us to talk about, but so far we’ve actually covered a number of angles on this, but they were all kind of earlier stages, right? I think you’re-


Hiten Shah: Yeah. All were like pre-seed, friends and family or seed round. I think a lot of the advice there was, a lot of the advice we’ve given was very specific to that. I agree.


Steli Efti: Exactly. So now, what do you do? Let’s take it one step at a time, right, so you have a start up, you raised some money,, you know, from angel investor, seed round, whatever the setup was, and you’re thinking about a series A. You’re thinking about needing to raise more money and getting to that kind of a funding event. What are some of the, you know, kind of milestones and what’s the set up that you need to create for your company to be able to raise a series A successfully, and then, you know, because it’s always a fun angle to talk about. What are some of the mistakes that you’ve seen people take when they’re trying to raise an A, which is probably, you know, they’re not quite ready yet but they think they are or something along those lines, I would assume. So let’s talk about the basics you think a company has to cover to be even able to consider a series A and then some of the mistakes you’ve seen. Take it from there.


Hiten Shah: Yeah. Let’s start with something really fundamental. So like one of the biggest things about raising money, especially at a series A is that you should have already addressed a bunch of the risk in your business. So at this point, and now again, there’s a big caveat here, which is if you are a biotech company raising a series A, there’s different sets of risk than if you’re an e-commerce company raising a series A or than if you’re a SaaS company raising a series A. So that’s the caveat, which is for your industry, your type of business model, the risk that you should have addressed by series A is a lot different. I’m going to give one other caveat, which is, if you are somebody who’s raised money a bunch, and are experienced with start-ups, sometimes the first round you do looks like a series A, and you raise five or ten or more million dollars. So those are the few caveats for you, but high level, yeah, go ahead.


Steli Efti: Yeah, go ahead, high level …


Hiten Shah: High level, the bottom line is, people are giving you money to basically grow the business at this point. They’re not just giving you money to build the product. They’re not giving you money to go validate a bunch of market risk or anything like that. You should have enough to know what your next milestones look like and how much money you need for them and why you’re taking that money in and what you’re going to do with it, while at your seed round, you typically have a lot less clarity about what you’re going to do with the money and how it’s going to grow your business. It’s less believable at that time. Now it needs to be much more believable and you should already have a bunch of levers in place on how you’re going to do marketing, how you’re going to do sales, how, you know, where the issues are that you need to resolve, where the risk still remains, things like that.


Steli Efti: Yeah beautiful. And, you know one thing that I’ve noticed oftentimes is that … And this is especially true in Silicon Valley. I don’t know. I’m assuming less so around the world, but because the environment for start-ups have become increasingly friendly over the last decade, right, without a doubt, and so I think a lot of startups have had an easier time to raise the seed round, and the seed rounds have become less complicated, I would say in general, right, more casual and more kind of, you know, as you said, you don’t have to prove that much you want to … Whatever the reasons are why an investor’s interested, you don’t have to do yet show that much. It’s understood that the business is still in the early days. All you have to show is a lot of potential and, you know, if you’re in a market that’s interesting or if you have early traction that looks really promising, and if the team is really strong, that might be all you need to be able to raise, you know, a few hundred thousand or even a few million dollars these days, fairly “casually”, right. There’s not that much due diligence going on, because the business has just started. There’s not that much paperwork. The terms … There’s pretty kind of agreed-on terms right now, even around the world on these things, so the experience, although it can still be soul-crushing and it’s very difficult for the average founder, the experience has gotten a lot easier in the seed round, and then what I’ve seen again and again and again over the last few years is that founders who raised the seed run successfully then get kind of tripped up in the series A and are surprised at how much harder it is, how much more time it takes, how much higher the standards are, and kind of how the conversation changed and the task of raising money is not just do the same thing as you did in this seed round, and that’s something I’ve observed a lot of times was triple, where they raise a really successful seed round, and then when they go to raise a series A they struggle and they fail at it and then they don’t know what to do, right. Is that something that you … I don’t know if you’re really kind of in the trenches on this and have your finger on the pulse? Is that something you observed as well?


Hiten Shah: Yeah, I mean, every round it actually gets a lot harder unless you’ve got your metrics in place and you have a very good handle on your business. So there is an easy way to solve this, which is operate your business as if you’re raising money all the time and need to prove to outside investors that this is a great business, which most people are actually not running their business like that. They’re just so caught up in the day to day. They’re not stepping back and thinking through what is this business? How’s it going to grow? And am I making the investments in the right areas? I mean one of my favorite founders who … I don’t have that many favorites, but this person, they are so good. And what they told me is basically that, Hey, by doing this deck process … They’re raising like a Series B this time. By doing this deck process, that actually I love it. And I’m like, What, you love it? Because at the pitching and all that, yeah, that’s tricky if you figure it out, but I love it because of the clarity it gives me about my business. And so even him who is pretty good at raising money or running his business and things like that, he has gotten pretty good at it. And so, when I’ve helped since his basically earliest round, he says it clarifies his business and he operates his business really well. He knows his metrics and he’s one of the few people that really demolished it in terms of taking the frameworks I’ve given him and done it a lot better, but the thing is like most people don’t run their business, even him, in a way where like it can be presentable to an investor, an outside investor any time. So that’s something to think about. Like, you know, every round the bar gets higher, you’re raising more money, your valuation is higher and what you need to achieve in your business in terms of revenue growth and user growth and all those kind of things, it’s much higher. The bar is just higher and so that’s why … It’s like whatever you did for your seed round to raise it, the kind of investors you talk to are much different than the kind you are going to talk to for your series A. And for many of us especially like the first company we’re starting, which is where a lot of people start and end, you’re basically sitting there and not knowing that the expectation is different all of a sudden with these investors. And you don’t know unless you’re getting great advice or you’re really thinking through your business in a way where you’re like, Okay, this round, I’m not raising half a million dollars. I’m raising five million dollars or ten million dollars. I’m asking for that and these people, they’re going to want to know what I’m going to do with the money. It’s a lot bigger check.


Steli Efti: Yeah that’s crazy. I love the … Just a step back to be earlier comment. I love that, you know, for that super experience founder, creating a deck and designing it and basically taking the high level view over the entire business and what’s currently going on and the risks and where the business is going and having to put that in a format, that is limited, so it’s not going to be, you know, thousands of slides, you know, and that has … Kind of, that needs boil down to the core numbers of the core things that are going on, that forces him into like, really gaining an overview of what’s going on in his business himself, because he’s doing this process in the right way, right? And we talked in the earlier episode about how to create a killer pitch deck and we said, don’t lie to investors. So, I think that’s a big prerequisite here. But I love that, that creating a pitch deck for him, because he’s doing it the right way, is actually helping him run his business and understand his business better and not just a chore, a homework he needs to do for these investors that presents zero value for him or his business internally. Now, I know that, just to make sure that we’re going to plug this here, I know that you just recently launched your newest product, which is super exciting, and it is actually a product this time that’s, you know, you’ve always helped entrepreneurs, but this is a product for a very specific, a big pain point, which is creating pitch decks to raise money, right? You want to talk about that a little bit?


Hiten Shah: Yes, sure. It’s called Dogo and it’s And it just went into early access. It might be a little more open by now, by the time its upstart comes out, but the whole idea is that my partner and I found that creating … People have trouble getting feedback on their pitch deck, so we’re creating a tool that enables a process to make that easier, and then we also noticed, that a lot of people are using a lot of the document sharing tools to actually share their pitch decks. So since we were building feedback, we also have the ability to allow you to get feedback on your pitch deck from people you already know and make it really easy for them and you and also share it with the investors, so that’s the software and it actually came through. And it’s free to use. Everyone can use it for free, and it actually came from this gentleman. And the feet … Not the idea, but he was actually the one I was talking about, that talks about, you know, the clarity that the deck process gives him. He was one of the first people that I actually ended up helping, a few years ago, raise his round and he really inspired the framework, because the framework existed that I was using, but he really took it and ran with it and it really inspired me, because I don’t think if someone like him would have just taken it and did it, like literally he made massive changes to his deck within, like, three days and within another seven, he already had a term sheet before I could really introduce him to any investors I knew and it was just amazing. And it really inspired the whole process that giving feedback on a pitch deck and getting it is a painful process. And that goes for any round, even like really, like later state series D round. You’re still needing to create something and get feedback on it regardless of who you are. Nobody really just creates a pitch deck and says it’s done. Most people, everyone literally, creates a pitch deck and it goes against feedback from people, whether it’s internal people on their team and advisors or other investors or existing investors. So I think that like, this is such a critical piece and when it comes to these rounds, like the series As and all that, you’re usually getting feedback from experts to tell you, how am I doing? Is this any good? What am I missing? And you want to do that because as we talked about it, in the last podcast, about pitch decks, you don’t want to show an investor something that’s not ready for them.


Steli Efti: Yeah. I mean, that’s … There’s so much there I really want to dive into. My early … I get some flash fixes you were talking about, like the first week I arrived in Silicon Valley ten years ago and I had my … The most horrendous pitch deck and we should actually put that online one day just to comment.


Hiten Shah: for that.


Steli Efti: Oh, my God. It’s such a painful, like, embarrassing experience. I had the worst pitch you’ve ever seen in your life. I’m pretty sure about that. And I was dying to get a new … Intrinsically this was probably wrong, but I couldn’t get people to give me really critical feedback on it. I remember giving … Showing it to really experienced VCs and telling them, what’s wrong about this? And they were looking at me going, No, I think you did a pretty good job. Like, No, what can I do better? No, it’s all good. They probably thought, it’s so bad, it’s not even worth giving this kid any feedback. They’re just like, How do I get out of this meeting as quickly as possible? And it took a really long time to get to that first conversation with somebody that was both experienced and really an awesome and honest person to tell me this is dog shit. And I was like, I know, okay, give me some honest … What would you change? How would you change it? And that, like, getting really honest, experienced feedback was a massive game changer. So like, I had all these flashbacks as you were talking about this. Like, how crucial it is to get good feedback from the right people early on, so definitely check out Hiten’s new products, it’s pretty dope. All right, so switching gears really quickly back to the series A, you know, obviously you want to make sure that you’re ready for it, that your business needs it. There’s a real purpose to raising that money and not often too many times the only purpose for raising more money is that the company that the founder is like, Well, we obviously need to raise more money because we just want to keep hiring more people, keep running the business and we’re not making enough money. But that’s not a good enough reason to raise a series A. You need to want to have a real good purpose that’s why we talk about the metrics, like, What are you going to do with this money? How is this money going to get you to that next level in the business? Either to profitability or to hyper growth or to a certain milestone in terms of customer numbers or technology build, something that has real purpose other then running your business for another year or two. That’s not enough right, nobody cares about that. And then, you know, you want to make sure that you, you know, leveled up the business, decreased and eliminated a lot of the risks at that level, but when you raise a series A, oftentimes it’s not just the money that you take, but at that point at the latest, you actually … With the money comes also people that will take some board seats. And I know that that’s probably a separate episode we should do at some point, like how to design a board.


Hiten Shah: Yeah.


Steli Efti: I know you have a lot of experience in that, but maybe just a few kind of high level tips. What are some things beyond just the money and that you need to be kind of at the next level to be able to raise that money. What are some other things that come along with a series A that people don’t really think through and they need to consider really well. I know, one to me is that, with the money, you will give up one or two board seats probably in the series A, so figuring out who is going to take over that board seat is so crucial, and then how that’s going to change kind of the way your company runs and operates and the influence your investors have in the day-to-day business. That’s a pretty crucial thing, right?


Hiten Shah: Yeah, absolutely, and even your thing about the boards like, yeah, we’ll definitely do. I think we’ll just do an episode on that. Sometimes you get a board, most of the time you get a board and that the biggest tips I have is like, your relationship with the investor … At a series A, there’s usually going to be one lead investor. There are caveats. But that’s the majority of the time. There’s a series A investor, there the … There are, you know at the top tier firms or not, but they’re putting in a chunk of the money. And so you actually have to have a great relationship with the partner that’s going to be on your board, or if you don’t have a board, the partner that has brought you in and has really committed to your business from just their own clout and their credibility your champion in the firm, whether they’re on the board or not, and you want to make sure you have a great relationship with them, and you can actually hang out with them and, you know, this is really basic, but I see most founders miss this, and still you’re going to love it. But basically, there’s a level of brutal honesty that you probably need to have with each other. And I know it’s like, very weird to say that, because, you know, these are investors. They gave you money. You want to be respectful. Brutal honesty doesn’t mean you’re not respectful. It just means that like, when they’re saying something, that doesn’t make sense to you, you need to tell them and say, Hey, let me explain to you what’s going on, right? Also, you need to have an open space there with them, where if you are screwing up or they disagree with what you’re doing that you listen to them and you actually take it in and, you know how to process it and it doesn’t feel like they’re attacking you and the best word I have is brutal honesty and the reason is? This is business. They’re giving you money. Their business is to give you money, so you make them more money. And founders forget that. They’re like, Oh, this investor loves me. Yeah. They love you because your business is great. They love you because you’re probably going to make them money, and they might love you because they actually like you or love you or whatever, but at the end of the day, your job is to make them money. That’s why you took their money. And you do that by building a successful business. So the alignment with that is all about growing the business, and making sure that you’re always focused on creating the biggest business possible, because you took investment. Especially at a series A, this is more critical than ever.


Steli Efti: Yeah. I think at a series A, you’re committing yourself to a certain outcome in the business and you’re committing to take disproportional risk to accomplish that outcome, right?


Hiten Shah: Yeah.


Steli Efti: They do it with their money or with their, you know, LP’s money and you do it with your business. You’re telling them, I want your money and what we’re going to do is we are to commit to this crazy outcome for this business and I’m going to push it to either get there or crash. But that’s what we’re going to … That’s the destination we both are committed to. There’s another thing you said, that reminded me that, you know, I used to tell founders that, you know, in the early “flirting” phase with investors, a lot of times they might make you feel really special and they might make you feel like they’re really in love with what you do, and they might make you feel that they’re really like personally invested and your friend, but remember, they’re “professionals”, right? You are there to find your true love that you’re going to commit to one investor or a group of investors for the next five maybe even ten years, but they’re doing this every single day. They’re professionals at dating founders and making them feel like they are the only founder they’re looking at. The only one that there is special so you need to make sure to keep your emotions in check, and I love the way you put it, which is this is business, right. You want to have a good relationship. You want to be aligned with people. If you can laugh with them, that’s awesome. If you can be honest with them, that’s awesome. If you have some personal interest that they share with you, cool. It makes life easier. It will make business easier. But the core relationship is a business relationship. But as long as your business is a good one and it’s going in the right direction, the relationship is going to probably be good. The moment it doesn’t, you can bank on, you know, well, we always were having such a good time with them. They really love me. That love is a love that’s attached to the business outcome, not as much to you, and even if it is to you, it doesn’t mean that it will prevent them from being either very critical or pushing against your agenda, if they think that your agenda is leading the business the wrong way. So being rational about the relationship with those investors and especially the one that you’re going to take on to join your board is so important. And the other thing you said and I think that we’re going to start repping this episode, this is going to be my tip for the episode before you can, you know, close out in a in a big way with yours, Hiten. I think that, you know, find the right … My tip is really … The seed round as well as in the series A, but in the series A even more so, find a very healthy balance between believing in your business, being committed and confident and comfortable in the vision that you are, you know, laying out in front of those investors and being brutally honest about the weaknesses, the risks, and the things that are not right, right now. Being able to talk about the shortcomings of your company and your startup and the things that are bad, or the risks that are really real, and doing so in a very confident and comfortable way is a very powerful formula and a very potent one. If an investor is turned off by the risk or by any kind of thing that’s a weakness right now, they’re not the right investor. They’re going to get spooked by that, you know, a few months down the line or a year down the line once they discover it on their own, if you were hiding it during the series A, so just be very honest and transparent about these things, but still confident. If you can find that kind of balance, magic happens and the relation with those investors are going to be much better, and your life is going to be much better, because you don’t constantly try to hide away the weaknesses and the risks, because you’re afraid that people would not put money in your business if they knew about that.


Hiten Shah: I love that. I love that. I got one, it’s a pretty big one and one that I see everybody making. A lot of series A investors have brands. They have online presences. They’re doing a lot of active marketing, because they have to. Some of them don’t. But … And some of the best don’t, some of the best do. It doesn’t matter. Don’t get caught up in the brand. Focus on what they can do for your business. Focus on your relationship with these investors. Do not get caught up in what you know about the brand publicly. Do your own diligence. Talk to people that have funded them, not just ones they’ll introduce you to, but other folks too. You’ll be surprised at what you learn and you have to remember that, you have to get along with them. And just because they have a great brand outside in terms of like, their marketing and all that, doesn’t mean that on the inside it turns out to be the same.


Steli Efti: Beautiful. I think that’s it from us for this episode. If you liked it and if you’re a fan of the podcast, make sure to go to iTunes and give us a rating, and give us a review. It always helps to spread the good news over the startupchat podcast. And as always, you can always get in touch with us on Twitter @steli and @hnshah. That was it from us.


Hiten Shah: Later.