1. Raising a Seed or Series A Round

Raising a Seed or Series A Round

Fundraising is an essential part of a founder's journey. Managing Partner John Vrionis and Unusual Founders break down the complicated process of raising venture capital and insights on what it takes to fundraise from top-tier investors.

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1.1 Milestones and Valuations
John Vrionis
John Vrionis
Co-Founder and Enterprise Partner

John Vrionis
John Vrionis
Co-Founder and Enterprise Partner

The Unusual Guide for Raising Seed and Series A Capital

Introduction

As a founder, you’ve embraced the life-changing decision to set out and tackle the difficult obstacles on the way to building a valuable, enduring company. At Unusual, we decode the lessons of the masters and make them available to tomorrow’s founders to increase their likelihood of success. 

In this module, we’ve broken down our early-stage fundraising guide into two basic parts: Part I. Milestones and Valuations for Seed and Series A, and Part II. Approaching Investors, The Pitch, and Closing the Deal. This guide is tailored to Founders of Enterprise Software companies. (We will cover Consumer milestones in a separate post.)

Part I. Milestones and Valuations for Seed & Series A


As an entrepreneur, thinking about all that needs to happen to succeed can be overwhelming. Many successful founders joke, “If I knew how hard starting a company would be, I’m not sure I would have taken the leap!” At Unusual Ventures, through our time spent with hundreds of successful entrepreneurs, we’ve learned that the vast majority break the larger journey into smaller, more manageable phases—each with specific goals. It may be a management secret, or possibly just a coping mechanism, but either way, it works. Conveniently, the phases are typically bookended by fundraising events. The simple formula is:

Company raises money → Company delivers A, B, & C → Company raises more money → 

In the early years of a startup, we believe there are three distinct phases for founders to successfully navigate: the Idea Phase, the Seed Phase, and the Series A Phase. Each phase has distinct goals along three dimensions: Team, Product, and Traction. 

The Idea Phase

This is the period when a founder is seriously contemplating taking the leap to start a new company.

The milestones in this phase are consistently: 

A) Team - recruiting a co-founder 

B) Product - creating a detailed description of the solution to build

C) Traction - talking with enough customer prospect types to confirm the “founding insight” that there is a true market pain and now is the time to solve it

Oftentimes, founders quit their current job to focus on accomplishing these milestones, but that is not always the case. It is true that sometimes founders do A, B, and C before quitting their job and/or incorporating a new company. Both can work. The key point: Order of operations is not critical at the Idea Phase!

If these milestones are achieved, and the business is a fit for venture capital, it is at this point that the company would seek to raise Seed capital.

A note on “founding insight”: This is your bedrock intuition that you are building your company on. Ideally, you’ve had first-hand experience living the pain that drives your belief that now is the time to build a new solution. Critically important in the Idea Phase is validating this belief through at least 20-30 customer prospect conversations. (See more specific tactics in our Outreach Playbook). 

The Seed Phase

Note: We interchange “Seed” and “Pre-Seed” to mean the first invested capital in a startup. Raising seed investment is for Idea Stage companies that are Pre-Product Market Fit.

As Benchmark Capital founder and Stanford Business school professor Andy Rachleff teaches in our Unusual Academy, achieving Product Market Fit (PMF) means that a startup has proven it understands which features to build, for a specific audience that cares desperately, with a business model that drives customer purchases. The primary goal of the Seed Phase is to find and demonstrate Product Market Fit.

The milestones to accomplish in the Seed Phase are:

A) Team - hiring the core team

B) Product - delivering 1.0 of the product

C) Traction - reaching a traction level where the business has 10+ customers and $1M of ARR 

10+ customers and $1M of ARR are not exact figures, but approximately what Series A investors look for in 2020. Note that traction is not 10 customers or $1M. Typically, you’re not looking for a single large elephant or two. Having a mix of a few six-figure customers and small-mid size customers in the $50K ARR range demonstrates repeatability and flexibility of your early go-to-market strategy. 

If these milestones are achieved, it is at this point that the company would seek to raise Series A capital.

The Series A Phase

This is the period when the startup scales its go-to-market efforts to accelerate revenue based on demonstrated Product Market Fit.

The milestones to accomplish in the period after raising a Series A are: 

A) Team - primarily increasing sales and marketing headcount

B) Product - building 2.0 of the product based on vision and market feedback, while removing early technical debt

C) Traction - reaching 50 customers and ~$10M of ARR

 

Valuations and The Startup Step Function

Startup valuations increase as a step function.

For private companies, valuation increases occur at the time of fundraising. It’s essential that founders understand the following facts:

  • Startups do NOT increase in value in a linear function, but rather as a “step” function. 
  • The valuation of a private startup is imprecise, and only significant changes occur at the time of financing events.
  • A new stock price is assigned at the time of each financing based on the agreed upon valuation of the company. 
  • The “steps” in valuation for a startup are tied directly to the company achieving critical milestones and investor perception that the overall likelihood of success for the business is increasing. (Said differently, valuation is inversely correlated with risk).
  • Reduction in risk at each phase is tied directly to the startup accomplishing the necessary milestones for that particular segment of its lifecycle.

Understanding that startups increase in value once key milestones are achieved enables founders to focus on creating a specific set of goals at each stage of the company’s journey. This way of thinking is one of the foundational pillars of the Unusual Method

Founders should appreciate that there is no “partial credit” in the startup journey. Achieve the milestones and de-risk the business such that more capital can be raised—or fail. Or, as we like to say at Unusual,

“Getting 80% of the way to the moon doesn’t count for anything.”

For Seed and Series A enterprise companies, the good news for founders is that the line for what milestones need to be achieved at each stage is clear.

Once the right goals have been set, what’s left is the fundraising process itself. This process can be broken down into five basic questions: 

  1. How do you approach investors? 
  2. What goes into a great pitch? 
  3. How do you manage a fundraising process? 
  4. What terms should you pay most attention to? 
  5. How do you ultimately make the right decision?
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1.2 Pitch and Process
John Vrionis
John Vrionis
Co-Founder and Enterprise Partner

John Vrionis
John Vrionis
Co-Founder and Enterprise Partner

Part II. Investors, the Pitch, and the Deal

Fundraising is a skill that can be learned and mastered. As a founder or CEO, job #1 is making sure the company has the funding in place to accomplish its goals. In this section of the guide, we break down the fundraising process into its subcomponents, highlight thoughts for consideration, and provide pro-tips on how to tackle each one. 

Which Investors Should I Talk To?

Let’s start with knowing which investors to talk to at each stage. While the milestones for raising Seed and Series A funding are clear in 2020, unfortunately, knowing which investors to talk to and how to label your financing round can be confusing. Don’t let the murkiness slow you down! Dive into Crunchbase and/or Pitchbook and start doing your research. We recommend taking the following steps: 

First, make a list of the firms and partners at those firms who have been the most active investing in startups in the same general category, and make special note of those who have had successful outcomes with businesses similar to your own. For simplicity, the broad categories are:

  1. Enterprise 
  2. Consumer 
  3. Healthcare

Next, from the list of firms that emerge that have the most relevant domain experience, make note of what stage (or stages) they focus on. If the financing round labels are confusing, consider three basic stages of maturity to simplify things:

  1. Pre-Product Market Fit (aka Pre-seed, Seed)
  2. Post-Product Market Fit (Series A, Series B)
  3. Growth and Pre-IPO (Series C, D, E, and F)

Make note of the firm’s typical investment size and compare that to what you believe your company needs at this stage to achieve the key goals. Typically, we recommend an investment amount that enables the company to execute for 18-24 months before needing additional capital. Raising too much capital translates to unnecessary dilution and too frequently, sloppy execution. (We believe optimal innovation comes from constraints.) At the same time, raising too little capital puts you at risk of falling short of the threshold goals and valuation inflection, and that’s the worst possible outcome. (Remember no partial credit in this exercise). If you find yourself with a set of goals that will take longer than 24 months to achieve, try breaking them down into more manageable increments. 

Third, make note of any companies you consider competitive and take note of which firms are investors. While many investors will invest in competitive companies, as a founder, it is something you want to avoid if possible to make sure there are no conflicts of interest. Lastly, identify which firms you believe will help you most with attaining the goals described above for the specific phase you are in. 

You now have your “big list,” so the next thing to do is break the list down into three tiers: Tier 1, Tier 2, and Tier 3. Tier 1 consists of the top 5-10 firms and partners you’d ideally work with. Tier 2 is that second, slightly less ideal list of 10, and Tier 3 are those firms you and your co-founders would consider, but not optimize for. If you have questions about which firms and partners belong where, find trusted, experienced people to ask! Do your homework and spend the cycles to educate yourself—you owe it to yourself and your team to be informed. At the same time, recognize that this is not meant to be a precise exercise, there is no 100% accurate way of doing this, so don’t stress. You now have your segmented list so it is on to the next step.

Managing the Process with Investors

Before diving into what will inevitably be a few weeks of mania, it is important to understand three essential facts about the pitch process itself:

  1. Practice makes perfect. You will get better with each investor pitch. Therefore, make sure you warm up with 2-3 meetings with investors from your “Tier 2” list. Think of this as testing your pitch “Off Broadway.” Then, schedule 4-5 “Tier 1 List” meetings within a timeboxed two-week timeframe.
  2. Limit the number of firms you engage with to approximately five at any time, only adding in new firms if existing ones don’t engage or drop out. We recommend you only speak initially to investors who are capable of leading the investment, as they will work with you to set the critical terms. While other investors may be interested in participating, finding the lead investor comes first and therefore deserves 100% of your initial focus. 
  3. Once you have identified the Partners at the Tier 1 and Tier 2 firms you want to engage with, find a way to receive warm introductions. We appreciate the debates around this idea. Being pragmatic, good investors receive a ton of inbound and yet, can only invest in a small fraction of the opportunities they receive. A warm introduction from a strong connection will help grab their attention. It also offers you the added benefit of a feedback channel after the meeting.

Once you’ve secured warm introductions to the investors on your list, the next step is putting together a top-notch pitch deck and telling your story in a way that highlights what the best investors are looking for. 

What Goes Into a Great Pitch?

In Unusual Academy, we provide every founder a copy of Jerry Wiseman’s book Presenting to Win because it’s the best, most succinct content we’ve found for guiding fundraising founders. The key takeaway is that nothing matters as much as your story, and there’s a formula you can follow to guarantee you put your best foot forward. As a fundraising founder, you need to appreciate your audience—the investor—and understand what they will focus on in regards to making their decision. 

 

Note: Your investor presentation is not the same as your customer presentation. They have two very different objectives. While both are intended to sell, the investor presentation must include a compelling narrative on the team, the big opportunity for the company, the economics of the business, and the milestones that will be achieved on this specific financing. For more on how to put together customer presentations as a Seed stage company, see our Guide for Building Your First Customer Presentation.

 

Before diving into the slide-by-slide outline, please note: the investor presentation itself should be practically useless without the voice over. Investors want to work with a founder who has clear command of the business and strategy. The slides are your props, but the main attraction must always be you! A good investor knows that a successful entrepreneur must compel investors, customers, and future employees—part of the evaluation is showing how well you do it! 

In terms of the structure of the pitch itself, here’s what we recommend:

1. Opening Gambit - Start with a human story about the problem and benefit your startup provides when implemented. It shows the listener whether you are an authentic entrepreneur who found the problem and insight honestly. Investors will be assessing your true passion and reasons for starting the company.

Objective: Hook the listener. You’ve got <5 minutes to grab the investor’s attention. 

 

2. Team - Who is on the team today and what are your backgrounds? Investors will be assessing 1) if this group is uniquely qualified to best solve this problem, and 2) if they have what it takes to recruit the world-class team necessary to build any enduring company. The order of the team slide is a personal preference. Some people prefer to save this to the end. We believe it should be at the beginning of the presentation because it informs the audience of who is pitching and it is typically one of the stronger aspects of any pitch.

Objective: Introduce yourself and your current team in a way that helps the investor understand why this group is uniquely qualified to best solve this particular problem. 

 

3. Problem Statement - Zoom out and talk about the greater trend that’s happening in the world and zoom in on the opportunity (pain) you are tackling. 

Objective: Establish common ground that there is a clear market opportunity happening in the world today (or what we call a “disruption in the force” at Unusual). You are looking for nodding heads and agreement that now is the time to solve it.  


4. Market - Classic total addressable market (TAM) slide. For a venture investor, the market needs to be big enough that they don’t need to do the math. Revenue potential is in the billions of dollars (not necessarily today, but in a timeframe that is relevant for this company). That said, we highly recommend a bottoms-up analysis to prove the point. Example: 50,000 companies buy DevOps tools today. If 2% of the market purchases $100k worth of subscription software from us, we will be a $100M ARR business in seven years.

Objective: Investor feels “greed” for the opportunity and isn’t questioning market size after this slide. Leave no doubt that the prize is worth the fight. 


5. Solution - Explain what you do in 1-2 slides. First, explain it in 25 words or less. Second, highlight the aspects of your solution that are particularly important to a customer and difficult to build. Note: don’t go into every technical detail. If the investor wants to dive deeper on the technology, she will in a separate session. At this point, the investor is going to give you the benefit of the doubt that you can do what you say you can do. She is mostly deciding if the solution in theory is compelling.

Objective: Two objectives for this section. First, explain in plain English the big idea for the company. At Unusual, we refer to this as the “Vision” visual as it is the big picture for what the company will eventually do. Venture investors want to see that founders are thinking big and have an idea for the chapter book that will ultimately be written. Second, dive into the heart of what is unique about your solution that will enable you to win and is difficult for competitors to replicate. 

 

6. Competition - This should consist of a visual comparing your solution with alternatives. The comparison criteria should be those that a customer would use to evaluate in a buying decision, and should highlight where you are differentiated. This is often a 2x2 or a Harvey ball chart. We suggest you use one of the two. 

Objective: Enable the investor to easily see that your product is superior on the dimensions that matter most to the buyer/user.


7. Go To Market - Most importantly, highlight what you believe is your beachhead use case. Emphasize who you will sell to in this phase to achieve the current Traction goals. This is NOT the time to focus on the big vision idea. In fact, it is the opposite. In Solution (#5 above), you told them you are going to take Paris, now tell them where your Normandy is. 

 

Objective: Investor clearly understands who the target user/buyer is for this product in the next phase. Worth commenting on the organizational design and product strategy aspects that facilitate the intended go-to-market (direct sales, inside sales, free trial, open source). The investor wants to get a sense of the associated costs (and capital) required to execute. 


8. Traction - This differs depending on if you are raising a Seed or Series A. 

Seed - Highlight customer conversations you’ve had and any possible early adopters or design partners you are engaged with.

Objective: Demonstrate you have a strong thesis about your initial use case and articulate why customers would opt to go with your solution 

Series A - Show logos and state of engagement with customers (Early discussion, POC, or current customer). Ideally have two case studies to describe problem and solution and an ROI to the extent possible. 

Objective: Communicate that your company has achieved Product Market Fit as evidenced by 8-10 customers and a robust pipeline of prospects who are similar in their use case, and are willing references. The investor is convinced you’ve found a repeatable sales motion and have clarity on your ICP (ideal customer profile). 

9. Operating Plan & Financials - In one slide, create a visual representation of the execution goals for the company for the next 24 months in terms of headcount, product releases, customer activity, and cumulative cash burn.

Objective: Summarize what the company’s key goals are for this period and the capital required to achieve them. Remember, on one level, this is ultimately a financial decision they are making so assist the investor in answering the question: “What will the company look like when it needs to raise money again?” They will use this information to decide if this financing is setting up the business for a future successful fundraise (a significantly higher valuation at the next “step” in the journey). 

We are not suggesting this is the only way to structure a good investor pitch! Based on our experience, these are the key aspects that founders need to focus on and this is a structure we’ve seen work very well thousands of times. 

Regardless of how you structure your presentation, as a founder it is important to realize that the venture capital profession has a distribution curve just like any other. There are average venture capitalists, below average venture capitalists, and premiere venture capitalists. You don’t want an average venture capitalist the same way you wouldn’t want an average heart surgeon. As a founder, you want and deserve the best. Studying the track records of the premier venture capitalists, history reveals that the very best investors consistently look for four things: 


Keep those four key things in mind as you put together your pitch. Here are a few additional tips to consider when preparing for your pitch:

Meeting and Process Tips

  • If the pitch is in person, arrive 10 mins early. Make sure you have the IT setup figured out so you don’t waste time fumbling around when the meeting starts.

 

  • We recommend no more than 15 slides and the ability to cover the entire presentation in 25 minutes or less, if necessary.


  • Assume you will get interrupted. But remember that it is your story to tell. It’s OK to confidently respond with, “Great question, I’ll get to that shortly in an upcoming slide. If you don’t mind, hold that thought and remind me if I don’t answer your question.”


  • Do not send detailed slides in advance of the meeting. That allows investors to turn you down before ever meeting you. (Remember: the investor presentation itself should be practically useless without the voice over.)


  • Throughout the process, you want to create the fear of missing out (FOMO). Psychologically, humans are motivated more by fear of loss, rather than joy of gain. (See: Kahneman & Tversky, 1979)


  • Never share specifics of who you are talking to in regard to other investors. Investors will assume you are engaged with others in parallel. Be clear about the timeline of your process. 

 

  • Never propose a price. You only receive an attractive price if you have alternatives (negotiating has little to do with it).


  • Founders often ask, “How will I know if an investor is interested?” The short answer is—You’ll know. Venture investors turn on the charm when they sense an attractive opportunity. They ultimately sell money and their assistance for a living—to survive, they have to be very good at pursuing deals.


  • Another common question from founders, “How should I handle an inbound request from an investor when I’m not currently fundraising?” Founders need to understand that investors would prefer to have an early look at an investment opportunity because they are better off if there are no competitors. Talking to investors when you are ready is the best rule of thumb. Just remember that every meeting, whether you like it or not, is an evaluation of some kind.


  • Investment decisions ultimately come down to greed vs. fear. Startups are, by definition, resource-constrained organizations that will inevitably make all kinds of mistakes. Venture investors want to bet on visionaries taking on large markets because they know most of their investments won’t work out. Venture capital is a game of hitting few, but massive home runs. 


Need help putting your pitch together? In the Unusual Field Guide, we prepared actual examples and tools for founders to learn from. One of our portfolio companies Vivun, graciously offered to work with us on a case study documenting their fundraising process and experience for their Seed round. You can find their case study here. If you want to see an outline of a fundraising deck, download our Seed outline deck here and our Series A outline deck here.)

The Term Sheet

Congratulations, you are now at a point in the process when investors will be making formal offers to invest in your company. Commonly referred to as a term sheet, the investment proposal details will be provided in a document that unfortunately isn’t exactly intuitive. Term sheets are legal documents that deserve serious attention. As is the case with most legal documents, the term sheet will have some language that you are unfamiliar with. If you want to dive in and learn about any of the specifics, there are many books on the topic. We recommend picking up a copy of Venture Deals by Brad Feld.


The best advice we can give you as a founder when it comes to evaluating term sheets is to make sure you have a top notch attorney working for you who is deeply familiar with the current market dynamics. Ideally, this is the same attorney who helped you incorporate your company and has agreed to defer all payment until after you’ve closed your funding round. If you need a recommendation we suggest:

 

 

As a founder, pay special attention to these Key Terms: 

 

  • Valuation (Pre and Post Money)
  • Total Investment Amount 
  • Available Option Pool
  • Founder Vesting 
  • Board Construction
  • Voting Rights

 

If you are looking for a quick explanation on the key terms or mechanics of cap tables, you can reference Goodwin Procter’s Deal Dictionary

The Decision

If you are fortunate enough to have more than one quality option, congratulations and be grateful for your “champagne problems.” Clearly you did a great job telling a compelling story and investors appreciate your insight and skillset. Nearly 100% of term sheets are negotiated, so expect to have at least a few discussions with your potential investors regarding the key terms. Use your attorney to manage the back and forth on the minutiae as they can do so with more objectivity and less emotion. Be wary of exploding offers (expiring term sheets). Allowing an investor to invest in your company is a big decision, and once the decision is done, it is nearly impossible to unwind. Having to make a decision with a gun to your head is the wrong way to start off such an important relationship. 

Founders frequently ask, “How much time do I have to respond?” The truth is there is no hard and fast rule. Most term sheet negotiations work themselves out in 2-4 days. When in doubt, follow the Golden Rule. Ask yourself how you would want to be treated if the situation were reversed? This is a relationship that is going to be core to you and your company going forward so manage it appropriately. It is absolutely acceptable (and expected) that you will take a few days to complete your process with other investors and any unfinished references. It is OK to tell investors you have other term sheets, but do not disclose any of the terms. Be direct about when and how you will make your decision. 

We highly recommend that you invest the time and energy to check references with founders who have worked with the firm and the Partner you would be working with most frequently. Investors will often provide founder references. Take the opportunity to speak with these founders, but also reach out to others directly. There is simply no excuse in the world of LinkedIn connectivity not to do some additional reference checking. 

Ask founders for specific examples of how the Partner and firm were helpful with building the company and assess the relevance for your company. Double click on who it was specifically who did the work. Unfortunately, many VCs take credit for successes they had little to do with. Be sure to find references where the outcome wasn’t a great success. Don’t be timid about finding out how the investor helped out during the tough times because it’s easy to be a good partner when everything is rosy.

Finally, it might be tempting, but don’t just fall in love with the firm brand. You are going to end up primarily interacting with one or two people from that firm. Ask yourself if they have the energy and capacity to be committed to your success. How much will it matter to them if your company succeeds or not? Do they have competitive investments? How many boards are they on? Make sure they will be a complementary addition to your existing board if you have one. 

Bottom line: optimize for the Partner you believe you will work best with for the long haul. 

Summary

Fundraising can be a wild, but rewarding process. Embrace it as an opportunity to learn and improve. Recognize that to build your dream business, you are going to need to execute the process successfully multiple times. Start by setting clear goals for your company at every stage, knowing what investors are focused on, and being deliberate about the investors you engage with. Practice your pitch and make sure it is an authentic story. As a founder or CEO, recognize your #1 job is to compel investors to choose your company as one of the few they will invest in this year. Ultimately, when it comes time to make your decision, take the time to do references and pick someone who will not only be the best partner for the stage you are at, but for the journey ahead. Have confidence and remember to enjoy the ride!


We sincerely hope you found this fundraising module valuable. Please submit any and all feedback to rae@unusual.vc and follow us @Unusual_VC.

Still have questions about fundraising from VCs? Be sure to tune in for our upcoming AMA with John Thursday, May 21, starting at 9:30 AM PT.

You can also download the PDF version of this guide here.

Outline investor deck for a Seed Round

Outline investor deck for a Series A Round

2. Vivun Case Study

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2.1 Vivun Case Study: Raising a Seed
John Vrionis
John Vrionis
Co-Founder and Enterprise Partner

John Vrionis
John Vrionis
Co-Founder and Enterprise Partner

Vivun Case Study: Raising a Seed

Purpose and Context 


The purpose of this case study is to provide an example of a successful seed financing for founders to learn from. Raising seed financing for a new venture is an exciting and nerve-wracking process. While no two founder’s journeys are exactly alike, at Unusual Ventures we believe that there is much that can be learned from distilling the lessons learned from those who have accomplished the same task. Vivun is an example of a team of first-time co-founders with a product vision to build a new enterprise software company.  

In this document you will find:


1) A description of the Vivun founders and the insight that led to starting the company

2) The process the founders followed to successfully raise seed financing

3) A detailed description of the fundraising pitch and its contents

4) How Vivun’s co-founders evaluated the terms of the seed financing and ultimately chose their investor.  


Step 1: Starting the Company & Recruiting the Founding Team


In 2018, Matt and Dominique Darrow quit their respective jobs at Zuora (the company had just IPO’d in April that year) and Google and set off to travel and recharge. It was while they were camping in New Zealand that Matt brainstormed an idea for a new company based on his experience as a presales engineer. During their travels, he designed and coded an initial prototype, and by the time they returned from abroad, Matt and Dominique had decided to incorporate a new company and recruit their founding team.  


They approached their longtime friend John Bruce, who was at SignalFx at the time, to be their first alpha customer and design partner.  John was very familiar with the problem Vivun was solving and soon decided to leave SignalFX and join as a co-founder.  Each co-founder brought a unique skillset to the team. Dominique added post-sale expertise (i.e. implementation, support, and customer adoption), while Matt had extensive presales domain expertise and a strong product background. John was a presales expert and a phenomenal engineer (one of the first five engineers at Pandora). They recruited their fourth and final co-founder, Claire Bruce, a gifted lawyer who had previously run legal for a billion dollar business to manage all corporate operations. They knew that building a business would take more than just tech, and felt confident they had put the right founding team together to ensure their success.


The founding Vivun team: Claire, John, Matt, and Dominique


Step 2: Validating the Market with Early Customers and Iterating on the Product


With the founding team in place, the group went full speed into their customer validation process. They experimented with cold outreach messages and tapped their network with the goal of obtaining conversations with 30 presales and product leaders. The goal of each interaction was to pitch the idea and receive input on the pain of existing solutions as well as collect reactions to the product. The Vivun team wanted to make sure they were getting objective feedback, so they took the extra steps to get in front of people who didn’t know them personally to see if they shared the same belief in the need for a new presales product. 


For three months, the team conducted "briefing" sessions with presales thought leaders and consultants to test and validate their idea. At the beginning of their customer outreach process, the Vivun team was unsure of who exactly their ideal customer was in terms of company size and industry. Their initial conversations were with presales leaders at publicly traded companies to startups, and spanned several industries. As they continued outreach and moved toward confirming design partners, they narrowed in on their ideal use case of software-driven companies going through inflection points of growth. Satisfied they were at a point where they could take the next step with several prospects, the Vivun team then spent the subsequent three months (from January to March 2019) engaging closely with their top 10, carefully selected design partners. In April 2019, bolstered by the positive reactions from design partners, the Vivun team decided they were ready to raise seed financing.    


Step 3: Beginning the Seed Fundraising Process


Vivun’s founders had a strong desire to be the first to market with a category-creating product. Matt admits that at the time, the Vivun team knew very little about fundraising. They started by tapping into their personal network, including prior CEOs they worked for and friends with positions at venture capital funds. Based on these conversations, the Vivun team started to get an idea of how the fundraising process worked, but everyone had different, and often conflicting advice. As Matt describes, 


In the end, nothing happened as anticipated. We heard the story about SignalFX skipping its seed round and going straight to a $8.5M Series A. That was the lore of Silicon Valley. You show up with a deck and there’s a frenzy of interest. In actuality, there was way more rigor than anyone had let on.


From April to July, the Vivun team continued iterating on the product based on customer feedback and achieving several key product development milestones such as launching integrations to platforms like Jira and GitHub, rolling out their native mobile apps, and investing in ease of setup and administration to let customers get started immediately. They worked out how much money they wanted to target for their raise based on the goals they wanted to achieve in the seed stage. They worked backward from that number to create an operating plan and calculated financial projections that showed how the company would drive toward the $1M ARR mark they had heard investors would be looking for. 


The Vivun team made sure they did their homework and scoured online databases like Signal, Pitchbook, and Crunchbase to research investors, filtering by factors, including:


  • Strength and nature of connection to the founding team
  • Geography
  • Usual check size
  • Specialization in B2B software


Based on this research, the team came up with a shortlist of potential investors. Part of the advice they received was to go through warm introductions where possible, so they focused on tapping their network to see who could provide a warm introduction to the target investors on their list. At first, they mistakenly engaged with a few firms through the 'front door' (i.e. through a request to meet from a junior member of the investment team). In hindsight, Matt notes that more often than not, those meetings and cycles were wasted effort vs. getting directly connected to Partners at the firms.


Step 4: Finding the Right Investors


By July 2019, Vivun had a strong founding team, working product, and traction with an early set of impressive customers like Flexera, Xactly, and Harness. They felt ready to begin the fundraising process and began arranging intro meetings with their first investors.


One initial mistake the Vivun team made was thinking they could engage with investors who were looking for Series A milestones. Matt found that while many investors claimed to be “early stage”, what that often meant in practice was that they wanted to see clear evidence of product-market-fit, most easily demonstrated by at least $1M in ARR (annual recurring revenue).  This was a milestone the Vivun team had not yet reached. They knew they didn't have the $1M in ARR, but thought that early customers, product traction, and a detailed plan for getting there would suffice. As Matt recalls:


"We would have 2-3 meetings with each investor. They would call our customers for references and push us on our revenue and operating plans. There was very little transparency throughout the process. No one would ever say no. They just said, ‘It’s not the right time for us,’ or ‘The conviction isn’t there yet.’ We burned 4-6 weeks talking to the wrong investors. It was probably one of the most frustrating moments of my professional life."

This “false start” cost multiple weeks in wasted effort. Looking back now, Matt stresses the importance of knowing where to start and engaging with the right investors during the seed stage. They had introductions to great investors, but it was the “wrong place and the wrong time”, resulting in several wasted cycles on meetings that ultimately went nowhere. 


After July’s false start, the Vivun team regrouped in August and adjusted their strategy. It was clear from those early meetings that investors were having a difficult time understanding their vision as a category-creating company building something completely new. The Vivun team quickly realized they would need to do a better job targeting investors that were true company builders and comfortable with investing at the earliest stage. With that goal in mind, the Vivun team arranged meetings with multiple angel investors based on recommendations and relevant industry experience. They moved forward with three of those angels who then lined up 20 meetings for Vivun and helped introduce them to more stage-appropriate seed funds. Around the same time, Vivun received an introduction to Unusual Ventures through Harness, one of their existing customers. 


The Vivun team was transparent with all investors about their timeline and wanting to timebox their fundraise into a four-week window. They didn’t want to stagger the meetings in multiple waves, knowing this could drag out the process and give investors the upper hand by letting the market price the round. Instead, they focused on meeting with everyone quickly and working the round to a close. 


Throughout their fundraising process, the Vivun team started to get a better idea of their ideal investor. After struggling through several meetings with investors who didn’t understand their product or market, they knew they wanted an investor who had domain expertise in the Enterprise B2B space, who was familiar with the role of presales. They started to accelerate the process with investors who fit that criteria and crossed off investors who didn’t. 


As for the pitch itself, they started with 20 slides. 40 revisions later, they whittled that down to a handful of slides. As Matt recommends, “Don’t over rotate or over complicate all the slide work.” According to Matt, investors were interested in the origin story, their backgrounds, and why they had a unique insight that others didn’t. When they told that story really well, they had great meetings every time. 


Pro-tip: Having a product in the market already can extend your process because people want to talk to your customers. If you’ve made those customers happy, it can collapse the process. You know those are the references they’re going to lean on the most so you can short circuit that. Matt notes that if he could go back, he would’ve tried selling to portfolio companies of the firms he wanted to pitch.

Step 5: Choosing an Investor


By September 2019, their pitch deck and ability to tell the story were top notch and several high quality investors made offers to lead the seed financing. They had narrowed those offers down to three firms, including Unusual Ventures. The Vivun team had 1:1 conversations with the Partners at each of the potential firms and discussed the key terms with their attorney before they made a decision. 


For Vivun, there were several factors they took into consideration when making their choice of which VC to partner with. One big concern for Vivun was the level of engagement. Some firms were intriguing to the Vivun team, but too structured in their approach: the Partners at these firms wanted weekly meetings, action items, retros, etc. The Vivun team was put off by the amount of structure and overhead. On the flip side, other firms had too little structure where they offered a check and network, but not much else. Matt and the team felt like they couldn’t really trust that these firms would be there when they needed help. They also wanted a firm that was set up to help them with the goals they had for the next 18-24 months and would be fully committed to their success.  


Matt’s advice is to find an investor with the level of engagement that is a good fit for you—there is no one size fits all when it comes to a VC partner. Check with a couple of founders who have experienced that investor at the same stage so you get a sense of how much oversight there is. Talk to founders to understand where things weren’t always rosy, and how VCs reacted. Unfortunately, sometimes oversight tends to go way up when things go wrong. 


Financing terms matter and the Vivun co-founders made a list of the things that were important them, including:


  • Will the investor take a board seat?
  • Pro rata rights in future rounds
  • Dilution for the founders
  • Total Investment in this round (Is it the right amount to achieve our goals?)
  • Valuation
  • Decision-making clauses
  • Employee option pool size
  • Terms for exit or acquisition 


As illustrated above, there are multiple factors that might impact a founder’s decision of which investor to partner with. It’s not as simple as taking the biggest check handed to you. For Vivun, the ultimate selling point was Unusual’s Get Ahead Platform (GAP), which offered hands-on help without excessive oversight—the right level of engagement for their team. 



Key Takeaways


  • Build a founding team with complementary skill sets
  • Find an 'insider' or 'coach' within the VC community you can lean on to understand the process, terms, etc. against what is industry standard
  • For first time founders, commitments from a few strategic angels can help validate your vision
  • Be creative in your market validation outreach (i.e. reaching out to user and buyer personas, industry experts, consultants, and speaking at conferences)
  • Never come to a VC through the 'front door' -- use your network to get intro'd to the partners directly
  • Make sure you are targeting the right stage of investor before you schedule pitch meetings. Pitching a later stage investor before you are ready will waste valuable time and effort
  • Don’t overcomplicate the pitch deck. Focus on your vision, origin story, and why the founding team is uniquely qualified.
  • If possible, try selling to target investors’ portfolio companies to get ahead of the customer reference part of the due diligence process.
  • Have a plan on how much money you need to get to $1M in ARR after funding -- but don't explicitly ask for a check size or valuation
  • Find an investor with the right level of engagement for you. Make sure the terms they offer will be favorable for future investors and set the company up for long term success.



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