Raising a $250 million Series D round may seem like a distant and unnecessary distraction to startup founders pitching investors for that first $1 million in seed money. But it shouldn’t be, according to several founders and venture capitalists. In their view, founders should be charting out a strategy for those later stage fundraises from the beginning.
Aven co-founder and CEO Sadi Khan said, while on stage at TechCrunch Disrupt, startup founders should start thinking about their later rounds before they raise their first financing. This strategy allows founders to determine how much capital they’ll likely need throughout the growth of their startup.
“We’re a very capital-intensive company; we provide asset-backed credit cards to consumers,” Khan said. “We require large amounts of capital to scale up, and we’ll require large, large amounts of capital to grow. From day zero, we knew that we needed to have an intensive pipeline of investors that we want to work with over a long period of time.”
Founders who understand how much capital they need can focus on finding the right investors for an early-stage round while building relationships with later-stage investors of the same flavor.
Lila Preston, head of growth equity at Generation Investment Management, said startups should start building these relationships at least two years before they need the capital.
Starting these relationships early gives investors time to get to know the business and the market it operates in, Preston added. It also gives investors a peek into the company’s growth.
Some later-stage investors — like Generation Investment Management, Preston said — can add value to a company long before they invest, if they think an idea is promising.
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“When we show up, even at Series A or B, we’ve done the homework so that we’re an additive worthwhile conversation,” Preston said. “‘What are your milestones?’ ‘What does success look like to you?’ As the entrepreneur, [if you are] able to articulate that, you can come back and say, ‘yes, you’ve been able to hit the milestones you set out.’”
Zeya Yang, a partner at IVP, agreed and added that later-stage rounds are closing quicker than ever. Giving investors time to learn about your company in advance helps both sides, Yang noted.
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