First of all, congrats! After putting in the tremendous hard work of getting your enterprise startup off the ground and gaining some traction, you’ve closed your Seed round (*sigh of relief and accomplishment*). While it may seem like the work is done, it’s only the beginning as a new wave of VC inbound starts hitting your inbox.
There are two schools of thought about what to do next in your fundraising journey: 1) always be pitching for your next fundraising round, or 2) the transactional approach of ignoring VCs until you’re formally ready to raise a round.
At Work-Bench, we fall into a camp somewhere in the middle: thoughtful relationship building between rounds. However, there are a lot of nuances of how to do this properly so that you’re optimizing your time meeting the right VCs, pitching the right information, all at the right time.
Above All Else, Know Who Understands Your Space
In the enterprise world, most Series As that are done for Security, Dev Tool, and Infrastructure startups are not closed thanks to a magical ARR threshold. Instead, they’re based on some early demonstration of product market fit, which truly varies by subsector. Some companies will be measured off of GitHub stars and community engagement, some off of the amount of early tech company customers they’ve closed, and some off of their design partners as they gear up to target Fortune 500s.
At Work-Bench, we’ve seen many of our technical startups raise a meaningful Series A with sub-$1 million in ARR. They were able to do this because their Series A investors understood their markets and appreciated the traction they made across product (plus associated integrations), team build out, and go-to-market.
After potentially struggling to get on VCs radars through a Seed round, it may feel exciting to have so many high profile investors reaching out to you. But this is the first “gotcha” in the process: just because a VC reaches out to you, doesn’t mean they’re interested in investing in your startup, let alone know your industry. The key is to realize it’s a VCs job to build a network of relationships with founders. But now it’s your job to vet these relationships, while focusing on building a company and achieving product market fit at this early stage.
The 6 Steps to Mastering Series A VC Relationship Building
At Work-Bench, we do believe in building VC relationships ahead of a Series A fundraise. Below outlines how to do that effectively to optimize your time and maximize the opportunity at your doorstep:
#1: Work with your lead Seed investor to vet and build a tiered list of potential VC firms that invest in your space and could be a fit for your Series A.
- Protip: If a firm leads Series A’s but is more a generalist vs. an enterprise specialist, more often than not they won’t understand the KPIs you’re using to measure your business’ health, and therefore won’t give you credit for progress you may be making. So for investors like this, it’s best to flag them internally as “not a fit.”
- Protip: Be careful vetting late stage firms. They may say that they’re investing earlier, but oftentimes they’re just trying to extract information from you and need several million of ARR to invest.
- Protip: Keep investors who aren’t a fit at bay, and keep a spreadsheet record of the firms and individuals who have reached out. For late-stage investors, you can reply that you appreciate the interest and will be in touch in the future once you’ve matured the commercial side of the business further. For non-fit early-stage investors, politely decline a catch up in the near term and maybe in the future they may make sense to connect with if something changes in their or your focus.
#2: Pick a “Fave 5” based on any potential interactions you may have had in the past, current inbound, and guidance from your lead VC.
The very best Seed investors will not only help you curate this list, but be knowledgeable about which VCs know your space and connect you with anyone you’re not already in touch with.
- Protip: As part of this process, make sure they actually do Series As (and aren’t growth funds pretending to go early), have domain expertise (either operationally or through investing) in your broader category, and don’t have a conflicting investment.
#3: Set up time to meet for the first time 2–3 months after your Seed round was closed.
Eventually, the goal is to set up a quarterly cadence ahead of when you raise your Series A 12–18 months out.
#4: During those meetings, try to determine:
- Do you vibe/click with the investor? Do you like their style of engagement?
- Did they show a knowledge of your market and ask thoughtful questions?
- Are they interested in and excited about your category?
- Do they understand the differentiations between you and your competitors?
- What milestones would they look for in order to lead your Series A?
#5: Begin a quarterly cadence of catchups after that initial meeting, assuming there’s mutual interest.
The goal is to make these catchups mutually beneficial, where you provide company updates and in return, you receive some sort of value. This can include:
- Customer introductions to their portfolio or network (this helps you with a customer, and them with diligence on your product). If they don’t offer customer introductions, don’t be afraid to ask for them! Capital is more commoditized than ever and the best VCs hustle to win deals they want, so a VC making introductions is a clear signal that they’re into your startup.
- Answers to strategic questions on your go-to-market or product.
- Market intelligence on how the competitive landscape is evolving (whether other startups or new offerings from late stage or public tech companies).
#6: Prepare what commentary, stats, and depth you’re going to share during these catchups.
There’s a lot of nuance here based on your personal feeling of trust with the VC. While there’s no exact science, the more trust you have, the more you can open up.
- Green light: Always talk through more public-facing company updates and dig deeper to give context on what they mean for your progress (ie. a key executive hire, a new product release, an adjustment to the roadmap and why/how it will benefit your market share, a notable customer win, etc.).
- Yellow light: In the early days of relationship building, don’t share specific ARR figures. As you build trust and scale up your own go-to-market motion, you’ll have plenty of time to dive into these metrics later on in the fundraising journey. Early on though, it can be helpful to share information such as the average ACVs you’re seeing, different customer profiles and roles you’re seeing success with, and even where you expect to end the year from an ARR perspective.
- Red light: Be careful sharing your customer pipeline until you have absolute trust with a VC. A good test when sharing this information could be if you’re trying to sell into a portfolio company of the VC and see if they can assist you with the close. But otherwise, if you’re just getting to know someone, oversharing could inadvertently sting you by upsetting your stakeholders at a prospect (if the VC reaches out to them without your knowledge) or even worse, derail you with a new prospect by a VC introducing them to a competitor (this would be horrible form, but it could happen).
If done properly, your Series A fundraise should be a lot more straightforward than your Seed. You’ll already have a group of VCs you’ve built relationships with, know your business, you get along with, and could see yourself working with.
The art of the actual fundraise is a topic I can cover in a future post, but if you spend your time after raising your Series A round building relationships in the manner described above, it should be a smooth sailing process.
If you’re an early stage enterprise startup building out your go-to-market strategy, we’d love to hear from you!
Thanks to Kira Colburn for her help in editing this post!