The series A round: it’s a sign that your company is well on its way. You’ve had a little success and now there’s some money in the bank. Not only do you have a product or service that investors believe is valuable, but customers also seem to want to buy it. This threshold is both an exciting and scary time for a startup, because following the A round things often change. Companies scale, leadership is tweaked, and more expectations are hefted upon a company.
I talked to some leaders of successful startups and venture investors about how things can change for a company after its once-small operation successfully raised their series A and moved onto further funding. What does life after the A round look like? Here are three of kernels of knowledge from our conversations with these venture experts.
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1. You need to have the right team, and that might mean you’ll have to make some staffing changes
A common theme that kept reappearing during my conversations with industry professionals and investors was that after the A-round, companies need to prove themselves. In order to live up to new expectations, companies rely heavily on the strength and resourcefulness of their teams.
“Before your A round, you are selling both the founding team and the vision of what a company in this market opportunity can actually achieve,” said Travis Connors, the Co-Founder, and General Partner at Building Ventures, a venture fund specifically targeting opportunities in the built industry. “After you raised the A-round, the question switches to ‘what can this company with this team achieve in this market?’ Investors have to believe in that team’s ability both develop a product that fits that market pain point and grows the company. After you have the money to begin to do that, you have to prove that the team you put together is capable of that.”
Investors have to believe in that team’s ability both develop a product that fits that market pain point and grows the company.
Yet, the right team to get the job might fluctuate throughout a company’s life. Connors said that as an investor, he looks at companies in 18-month chunks to evaluate if processes and the team are working.
“One of the most challenging things that can happen after the A round is that the team that gets you from Point A to Point B may not be the same team that takes you to Point C,” Connors said. “That transition can involve a lot of heartache.
2. The chaos of being an early startup goes away, you feel like more of an established company, and you have something to prove
Sometimes a startup’s early years can be characterized by a sense of organized chaos, but this diminishes as companies mature.
“Usually the mentality of people who love the chaos of the really raw startup phase are the people who hate all the processes that go with growing, scaling, and becoming more ‘corporate,’” Connors said.
Companies that pass the B stage also have something to prove to their investors. You need to plan out ahead more, and have more concrete answers for the people funding your company.
“Things start getting more rigorous around explaining your growth strategy and go-to-market,” said Ralph Gootee, Co-Founder and CTO of PlanGrid. “You have to have a much more mature look at your business, as far as metrics go, in the B round. For instance, it wasn’t my experience that you need to deeply understand your unit economics, but during my B round, unit economics became critically important.”
You have to have a much more mature look at your business, as far as metrics go, in the B round.
I also heard this notion--that things are certainly more intense during the post-A rounds--from Colin Wiel, the Co-Founder and Co-CEO from Mynd.
“During the series A, you get a lot more credit for a creative idea and raw talent on the team, whereas by the Series B, investors want to see traction,” he said. “They want to see numbers. What’s your LTV:CAC ratio (Customer Lifetime Value to Customer Acquisition Ratio; a measure of the average revenue a single customer is expected to spend set against the average cost of gaining a new customer), what’s your revenue growth rate?”
Yet, these are just growing pains for companies that are scaling. This is all part of the process, and the questions that arise following your A round need to be answered in order to continue growing your company and achieve success.
As Wiel told me, “it’s all about growing your company.”
3. Leadership becomes even more important in the middle and later stages
I know, I know. You must be thinking “No, duh.”
But every single person I talked to for this piece brought up the new heightened importance of leadership as startups make the jump to series B and beyond.
Some of the most important leaders in a startup are its founders, because they conceived the initial idea and vision, and they propel the company forward. When figuring out which companies he wants to invest in, Connors told me that one of first question he asks himself is “are these the right founders for this product in this market?”
“At Building Ventures, we are big believers in trying to back founders who will be able to stay with the company through its growth cycle,” he said. “We look for founders who are formidable.”
Founders are also incredibly important in the time after a startup moves past its A round, because they are vital to helping a company scale.
“I’d say the most important job of the founders after the A round is to hire people,” said Wiel. “Recruiting in the number one job.”
I’d say the most important job of the founders after the A round is to hire people.
As startups grow and mature in larger organizations with more employees recruited by founders and their vision, the need arises for more structure and leadership in the company. In particular, as you enter your series B round and you grow your team, you need people to manage the day-to-day operations of a company.
“After your A round, you’ve probably got a company to scale, which means that maybe during your A you had one executive and one idea of a management structure, said Gootee. “Normally after the A round, your employee base is large enough where you have to start developing middle management directors as well as full executive teams. So leadership become really important post-A, and you are trying to manage a large group of people, keep them aligned, and all the other wonderful duties of management and leadership.”
Colin Wiel and Ralph Gootee will be joining me for a panel focusing on middle and later stage startups at our Venture West Conference. Want to hear more of their insights? Then stick with BuiltWorlds for coverage of the event.