Keys to a Successful Series B Fundraise for Your Enterprise-focused Start-up

As featured in TechCrunch

After a seed round of $1-2 million helps build a working prototype and a $5-10M Series A enables a successful beta and launch, what comes next? Lots of entrepreneurs have reached out to me recently to discuss what it takes to raise a successful Series B, and luckily, for many enterprise companies, a similar pattern emerges.

For entrepreneurs, the good news is that there’s plenty of Series B capital out there. In fact, venture capital investment was 35% higher in Q2 than Q1 2014, reaching its highest level since Q1 2001.  The average Series B round in the first half of 2014 was $14.7M, 20% higher than 2013. On the flip side, as Series B rounds have gotten larger, the pressure is higher than it’s ever been to show real proof points. So, if you’re ready to dive into a $15-25M series B, here are four key items would-be investors will expect to see.

  • Come with References. If you’re considering your series B, you’ve already gone through the process of conceiving a product, building a prototype, and creating several MVPs. You’ve run a successful beta program that allowed you to gather relevant feedback from customers, and you’ve baked these learnings into your launch and subsequent product iterations. But now its time to prove that you’ve got a viable, scalable product – not just an idea. Series B investors will look for evidence that you’ve established tight product/market fit by talking to your customers and prospects. The more customers who can speak to the value of your product in its current form, the better. And in this case, less isn’t more. Even if your target market is large enterprises, more proof points, even if from smaller customers, will generally serve you better than fewer examples from larger ones.
  • Know the Model and the Metrics.  Series B capital exists to help businesses scale rapidly. The more your business model is worked out, the easier it is for a VC to see how the fresh capital will lead to growth. As an enterprise-focused company, key questions to evaluate include:
  • What lead volumes are you driving?
  • How much are you paying for qualified leads?
  • What’s the cost to acquire a customer?
  • How long is the sales cycle?
  • What’s the average selling price of an initial deal?
  • Do you have evidence of high customer retention and/or account expansion?
  • How long does it take a sales person to ramp?
  • What percent are hitting/exceeding quota?

As your get ready to raise a Series B, don’t expect to have rich data on all of the above questions, but do push yourself to track these metrics as much as possible. You’ll earn points from VCs for monitoring your business this way, even if results are early and still somewhat inconclusive.

  • Understand Your Sandbox. With so much capital available these days to fund good ideas, it’s rare to see a company at the Series B stage that doesn’t have at least a few direct competitors. Having competitors is ok – it can actually help validate your market. But it also means that prospective VCs are likely to know a good deal about your competition and will expect you to as well. Understand your competitor’s strengths and weaknesses, be prepared to discuss how and why you’re beating them today, and have a plan for market leadership over time. Similarly, be prepared to discuss bottoms-up and top-down analysis of the market opportunity you’re pursuing. Ultimately, even with competitors getting some share, you need to make a compelling case that your sandbox is sizable enough for you to build a big company.
  • Growing Team & Ecosystem. Especially if you’re a first-time CEO, VCs will pay close attention to the type of executive team you’re building. One common first-time CEO mistake is trying to do everything herself, and she’ll end up hiring other key execs too late or not at all. Again, a Series B is about scaling rapidly. A critical step to do that is building a strong exec team. VCs will want to see that you can recruit experienced folks to join your company. No one is expecting at the Series B stage that you’ll have a full senior team in place to build a $100M+ revenue business, but having a few additional talented execs who can speak to their excitement for the opportunity will go a long way. To a lesser degree, the same is true for partners in your ecosystem. Signing up some key companies that can distribute, implement, or enhance your product can help round out the story for VCs.

Master these four elements and your Series B will be a breeze. Also, don’t forget to talk to GGV Capital about the round!

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