Your SaaS company has made it through initial seed funding, you’re finding success, and now you’re ready to start scaling your company to the next level. It’s time to secure Series A funding so that you can develop and market your product, hire key talent, and expand your customer base–but where do you start in achieving this critical milestone? In this guide, we’ll lay out a strategy for SaaS companies seeking Series A funding, including how to:
- Build relationships with investors
- Engage with your board and investor network
- Understand what investors expect and create a content plan
- Design a pitch deck that gets you funded
Build Relationships and Engage with Your Investor Network
Former Ford executive Lee Iacocca once said: “Business, after all, is nothing more than a bunch of human relationships.” We agree, and that’s why the first step in your fundraising journey actually begins before it officially starts. That’s right–before you even kick off the fundraising process, you need to be building relationships with potential investors. This is crucial for any business seeking funding; however, it can be especially important for SaaS companies because they often require significant capital to fuel growth and stay competitive. Furthermore, in the current environment, fundraising is challenging. Not to be a Debbie Downer, but from 2021 to 2022 there was a 35% drop in global venture funding.
Investors are being extremely selective on who they invest in and that is why the value of having established relationships with investors cannot be overstated.
It is important that you have a strategy when reaching out to investors, and this begins by identifying which investors you want to target for your next round. Not only should you reach out to new investors but also those from past rounds, whether they be seed or angel investors. When having conversations with your board about investors, be open and transparent. After all, they are there to help ensure your company is set up for success and appropriately financed. Leverage your board’s potential relationships with new investors to help plan, strategize, and execute your next fundraising round. Your current investor network and board can help you prioritize inbound interest so that you are spending time with the right investors that can and should lead your next round. Ideally, these should be investors that specialize in SaaS and early-stage startups.
As you continue on the path to fundraising,make sure you are having personalized conversations with your top potential round leads, or potential investors that have shown high engagement during your relationship. Let them know that you plan to start fundraising shortly but have not launched a process yet. Even in this down market, your conversations could potentially initiate a pre-emptive offer.
In taking this first step, you can begin to establish communication and keep potential investors updated on your business momentum and high-level traction. However, we don’t recommend providing forecasts and metric projections as this could lead to setting yourself up for failure if you don’t meet those milestone targets. Instead, focus on building rapport and providing regular updates on your company’s progress. While we absolutely suggest establishing relationships early, be prepared to spend about 5% of your time nurturing these connections so they continue to flourish.
If there is no traction for a pre-emptive offer–don’t worry–the groundwork you’ve laid by starting to forge these connections will still pay off. It’s now time to reach out to 10-15 other investors and run a standard fundraising process.
Business, after all, is nothing more than a bunch of human relationships.
Former Ford executive
Plan Content to Secure Investors
As you get closer to approaching potential investors in an official fundraising round, your next step in preparing to pitch your company is all about understanding what those investors are going to need to hear from you in order to invest and devising a timeline for your fundraising round. Make your plan early, and be prepared to amend your timeline regularly.
As the SaaS industry continues to grow and evolve, it’s becoming increasingly important for companies to have a solid understanding of what investors are looking for when it comes to funding rounds, and a key component that they are looking for is a company’s product-market fit. Think of this as the degree to which a company’s product or service meets the needs and demands of its target market. It’s a crucial factor in the success of any company as it determines whether or not customers will be willing to pay for your product or service.
When it comes to product-market fit, investors want evidence that a company has a deep understanding of its target market and has developed a product that meets its needs in a way that competitors cannot. So, how can you demonstrate this? Consider including data on customer acquisition, retention rates, user engagement, and evidence that your company is capable of recruiting top talent in your industry.
If your product has a free or self-serve component, investors will want to see evidence of good growth in registration, usage, and retention–a 10% MoM growth rate is considered a strong indicator of success in this area. If there is no self-serve or free component, show that a half-dozen forward-looking logos (ideally these are paying customers) actively use the product.
For SaaS companies built on open-source technology, investors will be looking for evidence of the following: community engagement, open-source adoption, and monetization. To show this, provide evidence that your company has a strong community of users and contributors. This may include metrics such as downloads and starts. Demonstrate that your open-source technology is gaining traction in the border industry by providing benchmarks against similar players in the market as well as data on adoption rates. And finally, show that your company has a plan for monetizing its technology over the long term.
If infrastructure is the focus of your Saas company, investors will be watching for proof of early product-market fit, free self-serve adoption, referenceable customers, and your ability to recruit top talent. In order to show that your product has already gained traction with customers, you might include data on customer acquisition and retention rates. Other key indicators to provide are evidence of adoption by forward-looking companies by at least six accounts and referenceable customers. These are customers who have done a sophisticated evaluation in your space and can show how your product has been tested and proven to work effectively. Finally, demonstrate that your team is comprised of talented individuals who can execute your company’s mission and vision. When building your team, focus on hiring key talent who can take your business to the next level such as executives with a proven track record of scaling companies as well as technical talent who can develop and improve your product.
As you can see, clenching investments for your SaaS company takes more than just having a good product. Potential investors are also looking for companies with a solid foundation including product-market fit, the ability to recruit top talent, community engagement and traction, and early indication of monetization. Identifying these key elements will help you build a solid foundation to attract investors and provide a path to scale your company.
Create a Pitch Deck that Sells
Once you’ve laid the groundwork by fostering relationships with potential partners, dialing in your communication strategy with your board and network, and have taken the time to understand what these potential investors will expect you to show them, it’s now time to develop your pitch deck. We have created countless decks over the past four years that have helped our partners raise over $10B, and cannot overstate how important these are to securing funding. A well-executed pitch deck is designed to woo potential investors into wanting more and should tell a compelling story about your business and show how you’re going to change the world. Your presentation should be done in a way that intrigues potential investors enough to want to keep engaging with you and, of course, eventually invest in your company.
Keep in mind that investors see literally hundreds of pitch decks, so in order to get noticed, yours needs to be well-designed from story flow to visuals. Making sure your information is concise and your slides are visually appealing is crucial because you may only get one shot to make a great impression on potential investors.
Former Andreessen Horowitz partner Steve McDermid talks about this in his article “16 Common Questions about Fundraising”: “Most companies–again, not just focusing on those few big-name stars or ‘unicorns’– get very few opportunities to make a strong impression with potential investors. So treat each interaction as your last. Make those interactions count.”
This not only applies to the quality of your pitch deck, but to your delivery as well. Remember, you may only get one shot at making a good impression so be sure to go through several dry runs of your full presentation before your actual pitch. After all, practice makes perfect. Or, at the very least, it ensures you show up prepared to effectively communicate your company’s value proposition, capture attention, and generate interest.