For growing tech companies, securing investment that allows you to scale is an ongoing concern. And it’s not just about getting cash in the bank—it’s critical to find partners who believe in your vision and will support your business as you scale. Many of our clients here at Martyn Bassett Associates are growing tech companies who are either actively seeking or have recently secured Series A funding—it’s an exciting time for an organization, but one that can be fraught with challenges.
We recently sat down with Dave Unsworth, Co-Founder and General Partner of Information Venture Partners, a fund based out of Toronto, investing across North America—that invests in Series A ready B2B FinTech companies and Enterprise SaaS provided the application sells into the financial services vertical. With a number of successful exits under their belts—the acquisition of Adaptive Insights by Workday Inc. for $1.6B, a lucrative exit from Igloo Software, and the acquisition of Varicent by IBM—Information VP is a fixture in the Canadian VC landscape.
We discussed with Dave the criteria that Information VP uses to benchmark Series A readiness, as well as some advice he’d give to Founders and C-level executives who are looking to secure investment.
5 Criteria for Series A Readiness
Every VC firm will have their own benchmarks and terms for what makes a deal attractive, so if you’re seeking investment for your company, you should certainly do your research and make sure that you’re pitching potential partners who are aligned with your business. These are the 5 criteria that Information VP uses to benchmark Series A Readiness.
1. A Strong Team Led by a Franchise Player
An organization that is ready for Series A funding will likely have hit a few key milestones in the course of their evolution. One of these critical achievements is having a team in place that’s starting to gel and execute effectively.
For Information VP, one of the most important things they look for is what Unsworth calls a “franchise player”—a founding member of the team “that can paint a compelling picture of what the company is doing and why they’re going to win. And as important as that is to get right in your Series A pitch, for [Information VP], it’s critical for someone to be that franchise player so they can attract the best talent to the company. At the end of the day, the companies that win have the best teams and the companies that don’t, don’t. We’ve seen it over and over. You can see that franchise player across our portfolio of investments—people like Corey Gross at Sensibill, or Katherine Regnier at Coconut Software.”
2. A Repeatable Use Case
Unsworth and his team at Information VP look for solutions with an established and repeatable use case, and customers that can be called to validate that story. They are looking for a consistent story that illustrates what winning looks like for the customer.
“We like to see things that are highly repeatable, the same buyer, the same buyer titles, the same problem, and a company that’s able to sell that over and over and over again. That repeatability, or that early evidence of a repeatable sales cycle, is a key factor in what we look at for a Series A. Usually for us, those companies are approaching about $1MM in annual recurring revenue, so that’s a bottom watermark for us.”
Unsworth was clear that there are great examples of successful companies that have multiple use cases and customer stories, and that other VCs may seek out organizations that have multiple customer journeys. Each VC will have their own criteria and investment thesis, so it’s smart to do your research when you’re pitching.
3. Size and State of the Market
Information VP looks for a combination of factors in the size and state of the market. They often shy away from companies that are the first entry into a market.
“We may lose out on some big outcomes as a result of our stance, but we’ve been in companies where they’re the first solution in a market, and they’re trying to build a new class of software—and that’s a very long way to go. When you have incumbents that are either legacy vendors or competitors, then you’ve got people educating the market about why they need this software.”
They then look at the size of the opportunity in the market. If they are playing within a billion-dollar market, and the company achieves some level of real success—whether you cap that at 20 - 25% market share—they are looking for organizations that could build a company with a few hundred million in revenue.
4. Deal Terms that Work for Everyone
For Series A, there is a balance to strike between the size of the cheque, the valuation that an organization expects, and the size of ownership that Information VP likes to take in the company. Every entrepreneur and VC are likely to have different ideas about what makes an acceptable arrangement, but for Information VP, they prefer to invest in the 15 - 20% ownership range, which helps them to pay back a multiple of the fund from just one big exit. Of course, those terms also need to be appealing to Founders—so there’s a balance to strike.
5. A Founding Team that is Open to Support
Lastly, Information VP looks to invest in organizations who are open to involvement from their investors.
“We tend to shy away from people who would otherwise be franchise players, but believe they already know everything and don’t want any help. Our model isn’t a light touch model, and we like to be very involved with our companies. We build a very concentrated portfolio—we don’t do 50 deals at a time, we do 12 to 15. So, we want 12 to 15 teams that are interested in what we have to say and what help we can provide. If it’s an entrepreneur that doesn’t want that, that’s ok, but we just might not be the right partner for that entrepreneur. Of course, the level of our involvement varies dramatically—if you’re a first time CEO fresh out of school, versus someone who’s taken a company public, the kind of help will change, but we’ll still have that active dialogue.”
This support not only helps the companies—with things evolving and changing so rapidly, no one can truly know it all, and this exchange of information helps Information VP to continue their education in the market and refine their investment thesis.
Unsworth and his team use these five criteria to guide them as they select organizations to invest in. Of course, each investor will have their own investment thesis—the niche, stage of organization, and specific criteria they use to define investment readiness.
Advice for Founders and C-Level Executives
Following our discussion about Series A readiness, we talked about the common mistakes and missteps organizations make when they are seeking investment capital. Unsworth shared a few pitfalls that typically get in the way of doing a deal.
Bloated Valuation from Pre-Series A Investment
Especially in the FinTech space, it’s common for companies to have raised a lot of capital in Pre-Series A rounds, and to have burned through it—before they begin to display the qualities that Information VP views as critical for Series A readiness. This creates a challenge in structuring deal terms—with that much initial investment, it’s difficult to agree on a valuation for the company that works for Information VP.
“We haven’t done well in the past when we’ve overpaid or gotten involved with companies that have a capital inefficient structure. In our view, until you are able to start doing that repeatable sales process and can show that revenue can come in through the door, then it’s hard for us to get behind that team.”
Not Nailing the Pitch
Unsworth and his team see a lot of pitches—upwards of 1000 per year. His advice? Less is more. Within the first one or two slides, it needs to be crystal clear to the investor what the company does, why they’re doing it, and why it’s important. If you can’t do that, then how will you be able to communicate that to your customer? Of course, creating a compelling and refined pitch deck is incredibly difficult, as is being a CEO and an entrepreneur—Unsworth was quick to give full respect for the many challenges that founders face—but emphasized that it is critical to be able to nail the pitch.
Being Dismissive About Competition
Founders seeking funding should be realistic about the landscape of the market they’re working within.
“A lot of people are very dismissive, or don’t want to talk about competition at all. The famous line is ‘well, we don’t have any competitors.’ Often, if you don’t have any competitors, it’s because you’re chasing a market that isn’t worth chasing—not always, but 99% of the time that’s going to be true.”
Advice for Founders
We also talked about the advice Unsworth would give to founders who are looking to secure Series A investment. His advice? Look in the rearview mirror. From the time you start the company, raising capital is part of a founder’s objectives. Have you nurtured relationships with funds in your space who want to get to know your story and help you in your evolution? That makes the Series A conversation a natural evolution. Don’t wait until you’re going to run out of money to start building those relationships. If you haven’t done that, see if you can get warm introductions through your network, so that they will take the time to pay attention to your pitch.
And, while you’re nurturing and building those relationships, keep in mind that VCs take a lot of notes, and have long memories.
“If you’ve Founded your company and told us you’re going to do $10MM in your first year and come back to pitch Series A and you’ve only done $500K, that’s a problem. It just destroys your credibility when you come back in and have to say ‘yeah, but.’ It would be much better to initially say that you’re going to do $1MM in your first year, and then hit $990K—that shows us we have someone who can execute.”
Unsworth recommends taking a reasonable and conservative approach to the way you talk about your business. VCs look for entrepreneurs who have discipline around the way they talk about their business and their prospects, along with a track-record of building proof points and successful outcomes.
Securing Series A fund is an exciting time for growing companies—it often allows organizations to accelerate their growth, scale their teams and increase market share. While every VC will have a unique investment thesis, these insights from a successful VC can help demystify the process of securing capital to grow your business.