What You Need to Raise Your Series A (And Why It Isn't $100K MRR)

Hi everyone, my name's Ophelia Brown. I'm the founder of a fund called Blossom Capital. If you haven't heard of us before, it's because we're quite relatively new. We actually launched this year, so there's good reason for you not to have heard of us yet. We are an early-stage fund based in London. We're a team of 4 partners. And we came together over the summer with a mission to find the most interesting mission-driven founders across Europe who have ambitions and products to really become the next global category leaders. Um, and given the partners that we are, uh, we wanted to kind of build a very concentrated portfolio. So we'll only make a few investments each year, thinking very carefully about the teams that we can work with, because we want to work very closely with the founders. Between us all, as you'll see on these slides, our experience covers everything from product, sales, operation, financing, data science, and engineering. And so we took the view that we wanted to work collectively with our founders to help them build their teams and their products. So with that, because we are Series A focused, I thought I'd give a bit of a talk on what we look for when we think about investing in teams and products. Because I think that a lot of founders have this kind of mixed perception that it's about a certain metric that you need to hit, or there's something that you need to prove in terms of kind of a magical KPI that's going to get you your Series A away. And that's not really how we think about it. So time and time again, I've been told— and this is obviously kind of the title of my talk— that I'm going to wait until I hit $100K MRR, and then I'm going to go and raise my Series A. And I always kind of retort, well, what's magical about hitting $100K MRR? That really has no context to how your business is doing and how you're doing as a team. And I thought I'd just graph out in the last couple of years where Series As actually happen. I mean, I've seen $10, $12 million Series As happen at $40K of MRR, and I've seen $3, $4 million Series As happen at $150K of MRR. So how do you know what's right for your business, and how do investors actually think about it? I think the other thing that I hear commonly, which I also don't agree with, is, I'm going to wait until I have a certain set of unit economics, or I've proven something is working, to go and raise my Series A. But again, I think that's too much in the level of detail. So I thought I'd abstract and share kind of some guidelines on how we think about it, but also bring you some real-life examples of investments that we've made previous to Bottom that hopefully will give you some idea of bearing this to life. So the big question is, what do we actually look for if it's not $100K of MRR? Um, the first obviously starts with the product, um, and really thinking about, okay, what is unique, um, about what this team is building? How does it stand out from everything else we've seen? And is this a category— is this the team and this is a product that's going to win the category. And when we say win the category, we don't think only in the country that they are. We really think about global applicability. If you're thinking about investing in products that are going to become, you know, the next Salesforce and the next DocuSign and the next Dropbox, this has to be used by hundreds of millions, if not billions, people across the globe. And that's how we think about it. So obviously, to be a category winner, you need to be meaningfully differentiated. I mean, there has to be some evidence that your consumers love it or your users love it. And when we think about what's unique, well, how do you define what's unique? Where is the hook to using it? Why have people adopted? Why do they continue to use it? Is there some kind of sign that people engage with this more than anything else? Is it replacing something that was there before? Is there evidence of it being— other products being switched out, budgets being removed from existing players to new players? Is there an example of kind of word of mouth of people sharing it with more propensity than they would have shared something else? And how do their users think about the value of the product? Is it saving them money? Is it generating them revenue? Is it making them more efficient? These are lots and lots of the questions that we're asking when we think about how differentiated this product is. So to give you an example, when I was at a pre— my previous fund, Index, I led the Series A into a company that you probably all well know called Typeform. Typeform, many could have disregarded as just another survey tool. There was SurveyMonkey, why do you need Typeform? Why did I think this was gonna be a category winner? If you talk to the founders about Typeform, and if you look at their product and what it can do, Typeform isn't just a survey tool. Typeform is about owning data entry into every single form and every single survey, and anywhere you have to input data online, Typeform wanted to be the interface that allowed you to do that. How is it meaning differentiated? I think if any of you have used it, it's very clear that this is a wonderfully designed product that really mimics human interaction. That what is borne out in the data is if, you know, on a SurveyMonkey or any other survey tool, the average completion rate is about 20%, and the value of Typeform is that completion rate is around 55%. So it was meaningful, Meaningfully differentiated. Its users loved it in that it got them better results, and people were sharing it. So the company had grown to significant millions of ARR without spending a dime on marketing because there was inherent network effects from the virality in the product, how people were sharing it. So that was a very unique product that was clear to us at the very early stages that was going to become a category winner. So then if you have the product, the next thing we're thinking about, as I mentioned before, is how quickly can you scale this? How quickly can you get this product into the hands of hundreds of millions of users? Um, obviously at the Series A stage, it's kind of difficult to show much more than you've probably got though your early adopters and you kind of your early customers who really love it. So how can we tell What is the scalability of this product? Well, the first question is, is this a big enough market that you're playing into? Can this market really sustain a business that might one day be tens of billions of value generating billions of ARR? Um, and I know that seems crazy in terms of scale when you're probably generating anything between $50,000 to $150,000 of MRR, but that's genuinely how we think about it. And when it comes to scalability, I mean, it's kind of obvious to say, it's all about your growth and how quickly you can scale month on month. Growth obviously comes from two areas, new acquisition or upsell of your existing customer base. And so if we dive into new acquisition, we're thinking about things like network effects, both internally within an organization, Or will it be shared outside of an organization? And what are the hooks to allow you to grow that way? Is there other kind of network effects that perhaps aren't obvious to you at the time? Is there network effects in terms of the data that you're collecting? Is there network effects amongst clusters of users? And that's where I think that we can also be helpful as our own team. I obviously can't speak for other investors, but helping you understand your own data and thinking about what you can read out of that. Because I think a lot of teams underestimate the early signs of what they can read from their engagement or their adoption in their customers. We also think about defensibility, which often comes from stickiness of your product. It's all okay having kind of users engage with it, but what's gonna stop them dropping out at some point or churning? So where is the real stickiness in the product? Lots of workflow tools claim to be sticky, but actually, unless you're some kind of system of record and you're really needed on a daily basis, a lot of engagement metrics can actually paint a very different story to how the product is actually being used. And when we think about upsell, really driving that escape velocity of kind of compounding growth of your existing customer base, where's that gonna come from? So we think about, what is the growth of your current customers? How many seats can you grow within the organization that you already have? How are you gonna grow that? Are you gonna have to add new features all the time? Does the current product tap out at some point? If you think about a lot of security businesses, they have to constantly innovate to keep on to their customers without being switched out. And finally, on the economics. As I said at the beginning, I think I'm always kind of amazed how many founders tell me that they need to prove their KPIs, their unit economics, their cost of acquisition, their lifetime value before they figure out how to raise a Series A. And I'll tell you, whatever KPIs, whatever cost of acquisition, whatever lifetime value, whatever you show on a deck at your Series A is not going to be true by the time of the Series B. Series B, and definitely not true by the time of Series C, and certainly not true by the time that you're hundreds of millions of revenue, because you have got your best customers. It is so early, it is such a small data set, there's very little that you can extrapolate from. What we can figure out is whether something's working or not working, and so we look for certain signs, but we certainly will not base the plan of what you're seeing right now for what's gonna happen going forward. And so, the obvious things about signs of what's working or not working are more about kind of have the team built a product that they can figure, they've figured out that they can get to market and that there are customers for it. So, how have they got their product out there? What's been the cost of that acquisition? If you kind of brute force spend on marketing to get your few customers, that isn't really clear sign that there's a market need for it. Whereas if you've had a bunch of inbound leads and people kind of self-serve signing up for it, that's the kind of sign that people want what you've built. Um, and we do obviously do think whether this is viable at scale. I mean, if you've built a SaaS product for SMEs, that's not a product that probably supports a big sales force, which means you have to think about, okay, how are you going to market that product to your customers? What is the ACV? What is the potential cost of acquisition versus other benchmark products in the space? And is this something we realistically think can go to the hands of hundreds of millions of users? And maybe, maybe there's one metric that's killer that gives us a sign that this is an exceptional product or team. But I would say that the economics, we think, are kind of guidelines to think about at the early stage. By no means should define, uh, the success of a company at that point. And very finally, it's— while it's the final point, it's probably the most important point. You know, we think where we want to spend the most time and where we think, you know, the people who are really going to build this business, the most important, are obviously the founders and the early team that they've built to get to this point. I always say that an investor should never be walking out of the meeting feeling like they were the smartest person in the room. If your founders building your products who really have visions how your industry is going to change over the next 5 to 10 years, who are going to be the ones to go and hire a team around you to help you build and expand on your vision, why should a VC know any more than you? I think that's kind of the biggest mistake of any investor. So really, I'm looking for people who can educate me in the meeting. Tell me why your product is better than anyone else's. Tell me why you're going to be able to deliver this to the hands of hundreds of millions of users. Tell me how this goes global. Tell me why your competitors suck. Tell me everything about your product that I need to know to get excited to be on your journey, to support you in your growth. And then if we look at the early team, hopefully there's clear indications that you could have sold other people on your vision. And you've brought some really amazing people around you. I think someone said to me very early when I started out that they think that the best founders are acutely aware of their weaknesses and will be able to hire for those in others. And they'll build complementary teams. The worst founders won't recognize their weaknesses and won't hire for it. So we need to be able to see that on your early team you've built a really strong bench, But also you have aspirations to hire even better people going forward. And hopefully you're using some of that fundraising, or there are funds to go and help hire those people. And then finally, obviously, we want to see what you've already done. So don't come and ask for a $10 million Series A if you've only just built your MVP and got it into market. We actually want to see what you've achieved up until this point. And a clear plan of why you're raising money now to go forward for the next 18 to 24 months with us. So with that, if you are thinking about raising a Series A and you think you fall into any of your criteria that I've just mentioned, then please email us, your ex, and introduce yourself. We would love to meet you. And if there are any questions, I'll hand over.

Yeah, we can take a few questions.

Hi, my name is Jürgen. I'm from Austria.

Hi.

I wonder when you say that the $100,000 ARR are not the benchmark, so are we talking about Series A or rather prior stage? How would you define this? Time in, in the journey of, of a venture?

As in why I don't think $100K is the right—

Maybe the question is, um, when, when you're below $100,000, I would rather see it as a seed funding and not a Series A funding.

But my argument is, if you believe that you've got a product in the market and you can sell that product and it has the potential to grow to hundreds of millions of revenue or a billion in revenue and you think that there's something working there that requires X amount of million to help you scale over the next 18 to 24 months, that's a Series A. If you're ready to take that product to beyond 100K of MRR, you're ready to take it to a million of ARR, and you need funds to do that, that's a Series A.

We've got one more question here.

Hi, Ophelia. Hi. What's the biggest or most common mistake that you see founders make in fundraising meetings with you? That's a really good question. I think that people do get so hung up on the metrics, on the unit economics. They try to create these models of LTVs where they've only had their product to market 3, 6 months, and you're like, well, how can you build this forecast of something that seems a bit pie in the air? I think actually what I'm looking for is a founder who can tell me what's really worked in that period that they have been selling the product in the market, and why they think it's worked or not worked, and how they think that they can build on that going forward.

Hey, Alex from StepSize. I think I saw on your slide that there was one deal that happened at zero MRR. Could you please tell us a bit more about this one?

Well, when we come to the team and you talk about where you've been before, and you want to go out and you've proven that you can build a product, that delivers to hundreds of millions of people, and you're going out for a second time, that's when you can raise a Series A on zero of MRR.

Looks like we have time for one more question if anybody has one. Or if not, we can finish on that note. Anybody? No? All right, one more question right there.

Hi, Andrew from— Neva, what is the typical size that you participate in a Series A, in a percentage of?

We typically lead Series As. So we look for how much money the company needs for the next 18 to 24 months. And we'll typically take most of that round, which for us is anything between $5 to $10 million.

And as a percentage of the company's equity?

That's for debate.

Thank you very much. Thank you very much, Ophelia.

Thank you.