A couple years ago, my partner Lee penned a blog post about the milestone benchmarks for startups raising a Series A round of financing.  The five conditions for a Series A financing which he enumerated are: a core team ready to scale, demonstrable market size, repeatable cost effective customer acquisition, metric momentum, and plausible monetization.   But unfortunately these are neither necessary nor sufficient for raising that round, and are instead merely guideposts.  There really isn’t a hard and fast prescription for start-ups to follow after they’ve raised their Seed round, so what’s a startup to do?  Just plow ahead blindly and hope for the best?

In the past four years since we’ve been investing together at NextView, 70%+ of those companies in our portfolio which have made attempts at raising full-fledged multi-million dollar Series A after their Seed round have been able to successfully do so (with another additional cohort raising new capital subsequent to seed but not bona fide Series A).  And in seeing that process unfold numerous times, I’ve picked up that there are really four main distinct playbooks which a Founder/CEO can run in the subsequent 12-18 months following a Seed round in preparation for the next round of financing.

The four winning strategies for startups to go from Seed to A are:

1. Build Scale/Momentum.  The strategy here is to foster product development and marketing which creates overall (semi-)organic user momentum.  This focus translates into big top line figures, (admittedly) vanity metrics, and pretty graphs with less substance on business metrics or even deep engagement for now.  We live in a demand-constrained world and if, with your Seed capital, you can show overwhelming top-level pull (whether consumer or businesses adoption), Series A investors can convince themselves that the rest will fall into place over time.  This strategy is particularly helpful if the primary question of a Series A investor will be, “Is the (potential) market of this venture big enough?”  Showing eye-opening demand, even if it’s just a proxy for the eventual business, helps alleviate those concerns.
2. Generate Real Revenue.  For B2B startups especially, revenue is the best signal of product-market fit.  We’ve seen that exceeding a $1M revenue run-rate – however (liberally) defined – seems to be a magic threshold to attract serious Series A attention.  Even if those customers are acquired unprofitably or the margins are thin/non-existent, this revenue figure begins to connect the dots about the potential for a real business developed over time.
3. Craft a Small-Scale Machine.  It rhymes with #2, but this distinct strategy is to go deeper: demonstrate ultra-high engagement and penetrations into a small number of users/buyers with a clear LTV/CAC ratio.  No, revenue doesn’t reach $100K+/month like above, but the machine is built so that it’s extensible with a clear line-of-sight for the foreseeable future… “just pour on the gas because we’re now ready to go.”
4. Create an Unstoppable Vision of Promise.  All Series A rounds are raised on some level of promise in addition to reality, even in #3 where the promise is about scale.  However, one (risky) strategy on the other end of the spectrum – but one that can definitely work – is to build as much excitement as possible about what’s still to come.  Sensational press, luminary advisors, blue-chip customers about sign on, and a dream team of co-founders all are possible ingredients to bake this Series A cake.  This approach is surely more art than science, and requires an entrepreneur with a special skill-set of being able to make Series A investors just believe.

All of these strategies point in similar directions, but are certainly not the same vector.  There are inherent tension pulls between building scale and generating revenue, as well as between crafting reality and generating hype-full promise… all with limited resources, especially in a Seed round.

I don’t think that it’s incumbent on a new venture to start out knowing exactly which path above to pursue, as flexibility and optionality during an early experimentation phase along a company’s life-cycle can be incredibly valuable.  But as the next fundraising effort shifts from something theoretical in the fuzzy future to an event on the horizon to plan for, devising one of the gameplans above will help crisp the story and the efforts of the entire company to rally around it.  A fundraising compass is most helpful if you have a map of where you’re heading.