Many startups crash and burn when they hit the Series A crunch — that do-or-die time where many seem to lose their footing even if they’ve been successful up to that point.
If you’re standing at the precipice of Series A, it takes more than having a great idea or being an awesome founder to make it.
At SaaStr’s APAC 2023, Vertex Ventures General Partner Carmen Yuen, GGV Capital Managing Partner Jenny Lee, Square Peg Capital Partner Piruze Sabuncu, and moderator Arnaud Bonzom (Co-Founder and Managing Director of Black Mangroves) discuss the common pitfalls to look out for when you are raising your Series A.
Mistake #1: Viewing Investors Only As Capital
As founders build a team, they focus on obtaining complementary skill sets. When building a product, organizations are solving a specific need. But when it comes to investors, capital is often just viewed as capital.
That’s a mistake.
Of course, building great teams and finding product market fit is critical, but don’t forget about product investor fit.
Sometimes you just need a check, but when you can choose the check, take the time to vet investors properly.
Ask yourself these simple questions:
- Does the investor know what you’re doing?
- Can they help with your specific needs?
- Have they done it before?
Due diligence is essential; you should feel empowered to ask those questions from day one.
Mistake #2: Labeling The Value Prop Too Soon
Founders at this stage often don’t know enough about their customers to define the value prop, so don’t be so quick to nail it down and say, “This is what our value prop is.”
Walk the streets, talk to people, and deeply explore and understand actual personas.
Many founders’ imaginations run away with them, and they forget to validate. If you aren’t sure if you have a rock-solid value prop, look at churn, revenue, and even the ability or inability to raise funds.
Walk with customers to the very end of the customer journey to see what’s working and what isn’t. Investors want to know about metrics, the drivers of your business, and whether users are growing, engaged, or churning.
Mistake #3: Misunderstanding The Needs Of Your Geographic Market
Founders are always looking to resolve a key burning issue or problem set. Enterprise will likely have a different problem set vs. an SMB. That’s an important lens to view your problems, but it’s not the only one.
As global investors, GGV Capital looks at SaaS companies in the U.S., SE Asia, China, and other places. And while many of these SaaS companies are trying to address similar issues, the geographic markets pay for these solutions differently.
Many customers in SE Asia are budget-based versus subscription-based. So if you’re trying to fit your business model into what SaaS looks like in the U.S. and then try to take it to SE Asia, it’ll likely flop.
Mistake #4: Orienting The Business By Series Instead Of Milestones
If you have a burning need to resolve and want to change the world, then do a full pick-up plan. Don’t just orient the business to series A, B, or C. Instead, think through what it takes to get to your endpoint.
Do you want to fire a rocket into space? How much does that take to build, test, and then commercialize? Create a full breakout plan first, then look back and figure out who will invest.
Mistake #5: You’re Selling To The Wrong Market
Choose your market wisely. As the folks at GGV Capital say, “SE Asia is not sexy yet,” and that’s because we have a group of companies who are less willing to pay.
Of course, this doesn’t mean there isn’t a need for great tools and products. It just means it isn’t as big of a market yet. Founders can definitely help lift the ecosystem in SE Asia.
Can you start a successful SaaS business out of SE Asia?
Absolutely. You can sell to great companies as first users and engage in founder-to-founder sales, but close to series A, you need to keep your eyes on more developed markets to achieve VC-type tech company growth.
Mistake #6: You Expect Customers To Know How To Use Your Product
You can sell tools and APIs in the United States and call it Saas because it’s recurring. This business models assume the end user knows how to use it.
But when you expand to China, SE Asia, and India, the quality of developers and innovation is sorely lacking.
The key focus here should be a shift to education. It’s a huge sector, particularly in SE Asia and China. But if you sell these companies tools and products, they likely won’t know how to use them.
For emerging markets, there isn’t any low-hanging fruit. It requires hard work and customizing your value props to the market instead of waiting for the market to be SaaS-ready.
Mistake #7: You Establish Sales Efficiency Metrics Too Soon
Just like establishing value props before you genuinely know what they are, the same holds true for establishing sales efficiency metrics too soon.
Sometimes, investors see companies slapping sales efficiency metrics on earlier in the journey, and depending on the salesperson, that number could look really great or really bad.
If you don’t establish the right metrics at the right time, those metrics might not mean much because they aren’t showing what does and doesn’t work for users or your market.
The “right time” for sales efficiency metrics is unique to the company.
Mistake #8: Founders Take Too Long To Close The Deal
In the business world, everyone knows that time kills deals. It shouldn’t take six months to close a deal with investors.
You’re losing income from the term sheet to money in the bank, so you don’t want to get hung up on legal jargon. If people are happy and your one or two showstoppers are included in the deal, take it.
Mistake #9: Founders Don’t Realize Investors Are Vetting Them Too
When founders take a long time to close a deal or go down the long, nitty-gritty road of negotiating, that speaks loudly to investors.
And investors can walk away too. If a CEO doesn’t know what he’s doing, investors will find someone else who does.
It can be easy to compare yourself to the competition and tear apart terms sheets, but it’s too early in the game to worry about the competition. Instead, focus on getting the deal done as quickly as possible while still doing your due diligence, and focus on your own getting to market.
Mistake #10: Not all VCs have money.
Not all VCs have money, so don’t bark up the wrong tree. This falls in line with finding the right investor fit. Do your homework.
As you seek out investors, know that the deal won’t be done after one meeting in most cases. This long-range discussion will require due diligence, iteration, and a shared long-term vision.
Start conversations early and try and get meetings with all partners in the firm. You want to find the decision-makers and impress them with your work and what you’re trying to do.
Published on April 14, 2023