VC Start-Up Funding & Successful Scaling Across Series A To C

Growing a business from conception to realisation, from pre-seed to seed & series A and beyond is a monumental task. Those lucky few who have managed to grow a business to this level undoubtedly have their ambitions set high with priorities set on hyper-growth. The old saying “It’s a marathon, not a sprint” comes to mind; A burst of brute force will not get you to this point. Concise planning, determination and resilience need to become cornerstones of your business if you’re to make it to that lucky 7%…

If you’re sitting as the head of a successful start-up, having achieved series A funding, you’re already well ahead of the market and at the top of your game. If you’re an investor entering in at this stage, clearly you see the potential for massive growth & ROI. Whichever individual you are you have much in common, the ambition of hyper-growth looking towards that series B & series C funding with hawk-eyed determination.

If your business has achieved this position at an unprecedented speed, you might find yourselves dealing with the whiplash of this sudden success and therefore need a refresher;

Series B Funding:

Series B is referred to as the “building” round. When you are seeking Series B funding for your company, you are generally looking to scale your business model, expand your customer base, or expand your company’s reach. A start-up usually seeks series B funding for growth beyond development for the first time.

Series C Funding:

In general, Series C funds only large, rapid growth. As you perfect your core business and expand your market share, you are scaling your business in a much bigger way. Companies that are in the midst of creating massive growth often raise capital through C rounds, financing mergers and acquisitions and so on. This stage of raising capital is when investors usually expect a large return on investment, however, there is less risk involved, so you may offer fewer shares in exchange for the funds you seek.

With the picture outlined of what the following start-up funding rounds entail, what you need to go and do to actualise this for you and your future should be clear, however, this is where most companies begin to drop off. A study according to DealRoom suggests that only 16% of seeded companies will reach Series B, with a minuscule 7% achieving Series C.

So what gives?

Why do we begin to see this massive drop off past Series A? This statistic is largely based on a staggering amount of companies being unable to retain a solid organisational framework for scaling throughout seed to sequence C. Many articles provide great insight into the start-up period and results, but few describe how founders can grow a business from $1 million to $25 million in annual recurring revenue (ARR). This is where dilution of a company’s vision can set in as many find themselves falling into the same traps.

At the end of the day, there is no “secret sauce” to investment success. There are no shortcuts despite the many snake-oil solutions or suggestions you might encounter, and this is crucial to remember throughout the decision-making process. Of course, there are “theories” but no one-size-fits-all approach. One such theory is the T2D3 (triple, triple, double, double, double) theory. This acronym presents a formula for growing companies from a seed to a unicorn company of $1bn valuation. The validity of this theory can be debated but reading up on it cannot harm, we recommend this resource to learn more about the T2D3 theory.

There Are Stages of Maturity in Start-Up Funding

If a company makes $5 million in profits rapidly, it has different scaling desires than a $15 million start-up with rapid growth. For scaling a business, the concept of “maturity stages” can be useful in addressing distinctive needs.

Some of the most common “maturity stages” of a scaling enterprise include:

• Advert hoc
• Essential system
• Repeatable procedure
• Predictable procedure
• At scale

An ad-hoc approach is more or less the norm for start-ups. Sequence A is more about getting repeatable processes. Series B and C focus on predictability. Looking past Series C focuses on undertaking every little thing at scale.

This is, of course, a company-wide review. Depending on the department, this can look different. If a company has an enterprise product sales department and generates inbound prospects through digital advertising, it will likely have much more experience in marketing departments versus revenue. You should first determine which stage your company and department are at, and only do what’s required for that stage.

Expected Issues When Scaling

The key to scaling a business is to overcome a number of concerns. There are mainly five types of challenges to consider:

1. KPIs and knowledge:  The significance of different KPIs at distinct levels cannot be overstated. Begin by defining which metrics to use in each phase.
2. Persons: At the mid-stage, hiring (and retaining) people is a critical challenge. Growing businesses need to build out their management teams. The employer brand is crucial to attracting the best candidates in a competitive market. To compete for talent, you need to reward talent. When a company grows, it may have to let people go or introduce hierarchies to long-time employees. People are the backbone of any business.
3. Documentation and enablement: Technical documentation and frameworks will change and evolve greatly from stage to stage, it is crucial to stay on top of this throughout scaling to avoid and pitfalls down the line.
4. Processes: As a leader, it’s easy to feel like you’re getting out of your depth when scaling up. But chances are, everyone else is or has felt the same way. One of the keys to business success is passing on duties and responsibilities with ease and with confidence and trust in the parties taking over.
5. Tooling: The tools that your business relies upon to function, your tech stack, for example, are likely to change or alter drastically as you scale and grow. Every member of an organisation must be made aware and adapt to these changes.

Strategies For Success When Progressing Through Start-Up Funding Rounds

There is likely a multitude of factors that brought your company to this stage in its start-up funding & scaling progression. These factors most likely vary considerably for every investor or CEO reading this – one thing is for sure, what delivered you to this stage does not necessarily guarantee and ensure success to the next stage. Let take a look at some common strategies employed when scaling a business;

Co-founders should meet weekly

Scheduling regular meetings with your co-founders, where you discuss business and team goals rather than pressing sales deals or product challenges. This will be the easiest way to get started and achieve accountability.

Create a “personal board of directors.”

Two or three people should give you feedback on how to be a more effective CEO/CTO. You need three types of people:

1. A peer founder to share advice; Someone you can contact if there are problem employees, in need of a bookkeeper or are having a disagreement with your co-founder.
2. A founder who is two funding stages ahead of you: Having someone who can do things like go over your board deck before a meeting and diagnose serious gaps and weaknesses before investors can help is extremely valuable. Having someone in this position as a coach cannot be understated. 
3. A mentor who can provide longitudinal feedback: Is your skillset growing or have you stagnated? A long-term friend and an out of the loop person can offer critical advice about your long-term development.

Organise Your Delegation

Advice like this is often given but rarely followed. Outline a process such that after >12 months, you are not required to do anything except hold your team accountable.

Embrace Networking

Compile a list of the challenges and opportunities that are the greatest sources of stress for you. Meet with as many people as possible who might be able to help you. Such as;

• CEOs of big companies
• Service providers
• Technical experts

Listen to your executives

Founders often overlook this opportunity. This is a huge mistake. Although the executive may not be from a start-up, your goal is to now graduate from being a start-up! This means trading flexibility for planning and intuition for data. Asking questions of these new hires should take up a great deal of your time.

You do not need to follow every suggestion, but try to internalize the lessons and figure out how they apply to your business. You won’t get to an initial public offering using the same strategy that got you to Series A.

Written by James Coffey