Securing a massive Series D round of $250 million might seem worlds away for startups just starting out and hustling for their first seed funding. But savvy founders and venture capitalists are urging a different approach – begin strategizing for those later rounds from day one.
This forward-thinking mindset isn’t about prematurely fixating on large sums; it’s about laying the groundwork for sustainable growth and aligning with the right investors throughout the journey.
“We knew from day zero that we needed a robust pipeline of investors we wanted to work with over a long period,” explains Sadi Khan, co-founder and CEO of Aven, an asset-backed credit card company requiring significant capital to scale.
By understanding their future capital needs early on, founders can make more strategic decisions about who to bring onboard in the initial stages. It’s not just about securing immediate funding; it’s about building a network of investors who understand the company’s trajectory and are prepared to support its evolution through different phases.
Nurturing Relationships Before the Need Arises
While a seemingly ambitious concept, this approach starts with fostering relationships two years or even earlier before needing that hefty Series D funding. Lila Preston, Head of Growth Equity at Generation Investment Management, emphasizes the value of these early connections.
“When we show up, even at Series A or B, we’ve done the homework so that we’re an additive worthwhile conversation,” Preston notes. This proactive approach allows investors like Generation to gain a deeper understanding of the business model, market dynamics, and key milestones set by the company. It also demonstrates the entrepreneur’s preparedness and vision, paving the way for a more meaningful partnership down the line.
Gaining Momentum: Efficiency Through Preparation
Zeya Yang, Partner at IVP, reinforces this sentiment, highlighting that late-stage rounds are closing faster than ever. Establishing rapport with potential later-stage investors in advance streamlines the fundraising process when the time comes.
“It definitely helps to get to know those people earlier than you think you need to,” Yang explains. This familiarity allows for smoother conversations based on mutual understanding and shared insights about the company’s progress.
Leveraging Existing Networks: Finding Your Bridge Builders
Starting this network building process early can be as simple as looking inward. Khan suggests tapping into existing investors. A company’s current cap table is a valuable resource – these early backers often have established connections with VCs who specialize in later-stage funding, creating natural bridges to the next phase of growth.
In essence, preparing for late-stage fundraising isn’t about prematurely chasing enormous sums; it’s about crafting a strategic roadmap that incorporates investor relationships and capital needs from the very beginning. By doing so, startups cultivate a supportive ecosystem that propels them toward sustained success.
