What It Takes to Secure Your Series A: A Founder's Guide

In 2023, the capital market was hit by a chilling wind, with cash-strapped companies falling like wheat stalks and piling up in heaps.

But just as strong winds topple the tallest stalks first, founders still validating their concepts through seed and angel rounds remain like fresh green malt, growing in the shelter of the wind.

After completing the initial validation of key areas such as product, technology, team, operations, and market fit, more than half of the initial capital has likely been consumed, leaving less than ten months of runway. If you are now ready to bring your team and the preliminary version of your product to market, it is time to prioritize Series A financing.

You consulted your seed/angel investors, spoke with several proactive financial advisors (FAs), and read a few insightful articles, only to discover thatPreparation for Series A Financing Basically Relies on the Following Key Points:

I. List Target Investment Institutions

II. Develop Financial Budget

3. Clarify Valuation Objectives

4. Delivering an Immersive PowerPoint Presentation

V. Constructive Meetings with Investors

6. Managing Term Sheets

7. Conduct due diligence on investment institutions

“Listening to your words is as good as listening to your words.” It seems like everything has been said, but indeed, nothing substantial has been conveyed. Yet, what lies behind these seemingly straightforward key points?Counterintuitive OperationsandPitfalls to Avoid?

Even Seed/Angel-stage companies should have already accumulated a certain number of investor contacts through online media coverage and interviews, as well as offline roadshow meetings.

Here, it is recommended that the founderFirst Addition, Then Subtractionlist target investment institutions.

Compile the investors you have already accumulated into an Excel spreadsheet, then ask seed/angel investors to introduce some of their close contacts, and finally supplement the list with investors from other institutions who focus on your sector. According toInstitution, Decision-Making Partner, Focus Area, Ticket SizeClassify.

Begin simplification.Institutions that have not made any investments in the past six months, as well as investors who have already invested in companies within the same sector, may be considered lower priority.

It is not that these institutions are inadequate; rather, they are currently unsuited to your company’s stage of development.

Finally, keep in mind that even seemingly relaxed and engaging conversations with target investors should only take place after your pitch deck is complete. Avoid the awkward situation of being asked for materials that you cannot provide on the spot.

Preparation of Financial BudgetCosts and RevenueTwo directions.

From a quantitative perspective, your costs must be factored in advance into the multi-month planning required for a Series A financing round. The cost curve should align accordingly with the financing plan.

Qualitatively speaking, your future cost structure should demonstrate how the operational focus is shifting toward commercialization. For instance, a significant portion of your labor costs should be allocated to business development (BD) and market access professionals with experience at major pharmaceutical companies, rather than to a new engineering team building a second product line. Prioritize ensuring that your first product can be successfully sold.

In terms of revenue forecasting, highlighting aRational Boldness。

Rationality refers to the ability to demonstrate to investors all reasonable steps required to achieve the most ambitious revenue projections, with “ambitious” assuming that these steps can be executed with 100% completion. Taking new drugs, which are widely regarded as carrying the highest risk, as an example, one should consider a series of factors—including existing therapies for the target indication, response rates, efficacy, cost, reimbursement mechanisms, market penetration, patient population size, annual new cases, clinical trial protocols, and regulatory trends—rather than simply asserting, “As long as it gets approved, it will outcompete Keytruda.”

A counterintuitive approach is to not dwell on whether the projections are overly ambitious. Investors aim to derive the upper bound of the revenue ceiling from these forecasts.Investors tend to view the feasibility of achieving 100% completion through a lens of skepticism.

No matter how much capital you raise, each round of venture capital financing will dilute approximately 20–35% of your equity.

Believe that founders have all been told at some stage of their startup journey:“Your goal is not to achieve the highest valuation for this funding round. Your goal is to find an investment firm willing to invest sufficient capital to support your plans under market conditions, and that is a good partner you are willing to work with for many years.”

Indeed, you may have already deeply embraced this perspective and adjusted your valuation expectations for the future; however, please ensure that you have discussed valuation targets with co-founders, management, and previous-round investors to align everyone’s expectations.

“Good day, sir. We are XX Wealth. Here is our growth data from the past year. We project a 100-fold return in ten years. Would you be interested in investing RMB 50 million in our products?”

Did you immediately hang up and mark it as spam?

It is evident that when roles are reversed, the fundraising pitch aimed at securing tens of millions in cash from investors based on merely a dozen months of data must be exceptionally compelling.

In the context of venture capital, an immersive narrative needs to include the following four points:

I. A Vast Population with Unmet Needs

II. A (provided by you) product/service that can address this need and generate profit

3. The market is large enough to accommodate a unicorn

4. A Moat That Protects the Company’s Revenue

WePrevious ArticleTaking AI-based auscultation for heart murmurs as an example: “We are committed to addressing the challenge of early screening for structural heart diseases through AI-powered murmur screening. The company holds proprietary patents for its AI murmur algorithms and auscultation hardware. With low costs, minimal burden on hospital adoption, and a short learning curve, it is easy for young medical professionals to master. It covers primary care hospitals and clinics, facilitating patient triage and optimizing the diagnosis and treatment framework. A consumer-facing (ToC) version can be developed to enable companion diagnostics, without requiring reimbursement from medical insurance.”Hearing that last sentence, the investors on the other end were probably calculating so furiously that their abacuses were sparking.

Everyone’s time is extremely valuable. Since you are meeting with investors under the assumption that a deal may not be closed on the first encounter, strive to create as much value as possible.

Prioritize meeting with investors who have closer relationships and are of medium priority on your target list. They can provide you with substantial constructive feedback, whether candid or pragmatic, and help identify gaps in your pitch deck.

After enduring multiple rounds of intense scrutiny, supplementing the pitch deck with all necessary appendices, and refining the fundraising narrative to feature a compelling opening, substantial body, and powerful conclusion, you will be better prepared to meet with high-priority investors on your target list.

After meeting with countless people, drinking cup after cup of coffee, and attending one meeting after another, you have finally received your first Series A term sheet (hopefully not the only one).

If youSatisfied with the terms(such as key terms including amount, valuation, equity structure, investor preferences, and exclusivity period), and provided that Legal, shareholders, the Board of Directors, and the advisory team have no objections to the terms, proceed with signing and next steps.

If youNot entirely satisfied with the terms., and if another institution is closely following with similar interest in the company, you may consider informing the first institution that feedback needs to be provided to the other equally interested party. This can indeed buy you some buffer time, and the request is entirely reasonable.

If youDissatisfied with the terms, and no other institutions followed suit., it is recommended to secure funding through alternative means to refine the product offering and accumulate data, with a view to relaunching the Series A financing round in the future.

IfMultiple institutions have provided TS., first of all, congratulations on gaining sufficient influence, which also demonstrates the persuasiveness of your products. The balance in this process is subtle and varies by institution; for details, please refer to our previous article “Over the Past Year, VCs Have Been Grilling Founders with These Questions》. The overarching principle is clear: it is certainly not the case that cramming in more institutions yields better results. An appropriate number of entities and a balanced, well-prioritized relationship among them can bring substantial stability to a company’s development.

After several hectic months, the multi-page Term Sheet (TS) is finally in front of me. Legal has approved it, the board has reviewed it, and the investors are practically forcing you to sign immediately so they can wire the funds.

Wait, is this good fortune coming too quickly? Should we conduct background checks on the investors? What, founders can also perform due diligence on investors?

That's right, a complete reversal! Now it's your turn to DD others.While insisting that founders sign term sheets quickly is not necessarily a red flag—after all, whirlwind romances can lead to lasting happiness—a good investor and an excellent investment firm will certainly provide systematic post-investment services beyond capital. They help founders solve problems and offer support in subsequent funding rounds, aiming to become long-term partners to the founders.

By directly presenting requirements to investors and initiating contact independently,Attempt to contact the CEOs of several companies that this investor and their firm have invested in.Gain a multi-faceted understanding of the challenges these companies encountered during their fundraising processes and in the post-investment phase, as well as their subsequent progress. This information will better ensure that your goals and values align with those of investors.

Finally, to reiterate: while we hope all entrepreneurs can find suitable investors, it is absolutely essential to obtain legal counsel’s review and board approval before signing the Term Sheet.

Any business operator is well aware of the costs associated with terminating an employee’s labor contract. However, the financial, physical, and mental toll required to “dismiss” an investor or shareholder can be exponentially more burdensome, causing manifold times the distress.

Last but not least, we hope that in 2024, you will overcome all obstacles and rise to meet the challenges head-on.