Working with many seed-stage companies, a large component of my decision-making and work revolves around being helpful as the company approaches a “Series A investment.” This term can mean different things to different people, so I’ll simply state how I define it — To me, Series A is when a professional, institutional investor (usually at a VC firm) writes a check for 75% or more of a $5M+ round, pricing the equity, converting the notes, and joining the Board of Directors. In theory, it is a long-term commitment from the institution’s point of view, and that VC is likely reserving up to two times the initial investment amount to keep investing in the company if it grows.
From the point of view of a founder, “getting to the Series A” is a big milestone, anchoring deeply in the mind as seed capital is now relatively easy to find. While everyone wants to “get there,” of course, reality is a bit different, and Series A investors are constrained by how many boards they can sit on, and their own partnerships often act as a governor on pacing such that, more or less, VCs are maybe joining 1-2 boards per year. Much has been written about these behaviors, so I’ll just briefly leave this here as context for what I really wanted to convey in this post, which is…
For founders hoping to prepare for a Series A, think of the milestone slightly differently. As an exercise, think of it as “Recruiting a Board Member.” When framed this way, a founder could ask him/herself slightly different questions: Who would I like on my board? What style of engagement do I want, or need? Do I want my board member to have a specific background, or network?
Not many founders have the luxury of choice, I know. But I do see so many founders who are earnestly charging hard at this milestone, and then are surprised when it takes longer, or doesn’t work out the first time — so, rather than thinking of it as a milestone, I’d like more folks to think about it like hiring, like a recruiting event. When trying to recruit a great hire at a company, a startup will prospect and try to win over the heart and mind of a great candidate. But if great people aren’t ultimately joining the company, what could that mean? Or, if a company in that moment can’t recruit a board member, what could that mean about the opportunity?
I wanted to pose these questions because I see a large disconnect here. The founder wants to hit a milestone, raise more money, and keep going — the VC is hoping to be selective, to make a long-term commitment, and to join the board of a company. I am trying to find early-stage founders who one day want to recruit a board member. It’s a slightly different mindset, but one I’ve found to be definitive. I believe if more founders approached this milestone as a recruiting event instead of a financing event, more of them would be more successful at getting to the A and closing it quicker.