As summer 2015 creeps to a close, several recently seeded companies are getting ready to pursue their first significant Series A institutional investment round. Things have changed dramatically in the 18 years I've lived in Austin and have been part of three Series A+ backed companies (ichat, Motive, Pluck). And the landscape for Series A raises is very different from the days when many folks pursued a bit of an "Austin Ventures and everyone else" strategy.
Yesterday (July 19, 2015), Semil Shah published an excellent post on Series A raise guidance in general. I wholeheartedly agree with his perspectives on timing initiation (September), precision (targets), vision (big), teams and more. If you haven't already read it, check it out here.
While Shah's take holds true broadly, there are also a few Austin specifics that are worth drawing attention to and considering, especially for SaaS/enterprise software firms getting ready to raise. These include:
Hit Your MRR Cliff: while not a hard and fast rule (and sometimes addressable via high growth), $100K+ in current MRR along with a clear pathway to $1M+ in MRR is often tablestakes for Series A dialogues. If you're not at least at $100K MRR yet, make sure you understand the competition you'll have for investors' deal cycles.
Consider Starting Outside of Austin: while my local institutional friends would prefer an alternative path (see below for my shout outs to them), I've seen several examples of Austin companies that bring in a lead investor from outside of town (and then often line up a local partner for a club/group deal). Examples of great non-Austin based Series A investors who have invested in town include:
* Mike Maples, Floodgate
* Anthony Lee, Altos Ventures
* Jeff Hinck, Rally Ventures
* Blair Garrou, Mercury Fund
* Seth Levine, Foundry Group
Note that the list above is non-exhaustive and is based on personal and friends' experiences. There are certainly other significant firms that are active in Austin, including Battery Ventures, Charles River, and Mohr Davidow. And doubly note that raising money in Silicon Valley is arguably harder in many ways than raising elsewhere, including Austin. But that might be a good topic for another post!
Ponder Medium-Sized Austin Funds: maybe not surprisingly, my primary list above is mainly made up of $100M - $200M funds. In my experience, many funds look to return 20% of the fund (reasonably) with each investment. So, a $100M fund that makes a $4M Series A bet can look at a 5x return without requiring a public offering (for simple math, a 20% position in a $100M acquisition can reasonably drive 5x on $4M (=$20M = 20%); of course funds would like 10x+ returns but 5x in a reasonable time period is generally viewed favorably in my experience). On the contrary, $1B+ funds sometimes struggle with the need to return $200M per investment (10x the formula above). Accordingly, three compelling Austin Series A-oriented investors (in my experience) are:
* Krishna Srinivassan, LiveOak
* Morgan Flager, Silverton
* Jason Seats, Techstars
Note that while Jason is in Austin, Techstars is technically a distributed fund with partners in Boise and Boulder. Other notable Austin funds generally tend to be seed oriented (e.g. ATX Seed) or Series B+ focused (S3, Vista, etc.). Several Austin Ventures partners have been great friends to startup teams historically and may be in a position to help as their partnership continues to morph. Don't rule them out.
Have Your Support Network Ready: as Austin SaaS/enterprise software is still a pretty small community, having influential folks in your camp really helps during due diligence (i.e. back channeling). Executives who know your business (advisors, angel investors, etc.) and who have produced hits via portfolio companies like Vignette, Tivoli, Motive, Pluck, BlackLocus, Bazaarvoice, HomeAway, Waveset, Convio, Adometry, SolarWinds, and RetailMeNot are key for startup teams.
Of course, there are lots of nuances around your pitch desk (Kip McClanahan of Silverton has a 2012 series of tips that still hold true here) , ham-and-egging your approach, pondering a single investor versus a club/group round, determining valuations, and navigating the myriad of complexities inherent in term sheets. But if you can start with a wise approach, and find your way through good execution + a little luck on the four points above, you are well on your way.
One final point: there are lots of people (myself included) who are absolutely inclined to "root local" and who love to see Austin companies raise capital from great partners. So, lean on us to help!