From Seed to Series A: Demonstrating Growth

Automated Transcript

Alastair Cole 0:03

Hello, good afternoon and welcome to The Sales Scoop. This is a live show for tech startup founders who want to improve how they sell. My name is Alastair Cole - I'm your host for today. I'm a computer scientist and ex Software Engineer with two decades experience in B2B sales and marketing, and I'm delighted to say that I'm joined today by Kiran Gill, B2B sales expert and startup co-founder. Hi Kiran. Hi Alastair.

Kiran Gill 0:37

Hello everybody. My name is Kiran. I'm also a co-founder of The Uplift Partnership. I have 25 years of experience in frontline sales operations, and in complex selling - in tech and in finance.

Alastair Cole 0:54

Thank you, my friend. So today's topic is really exciting, from seed to series, demonstrating growth and how startups need to show how they've grown to secure that series a funding. And for me, you know series A is all about demonstrating that there is sustainable product market fit. You've got to show investors that people care about your product and are prepared to pay for it. Kiran, what's your feeling in the market at the moment for what's happening with funding, you know, in series A but also in seed, what's what's happening in the investment ecosystem out there? My friend,

Kiran Gill 1:39

yeah, looking into what's happening out there in the world of finance, there is an increase in 2024 in financing at seed a or series A from seed. So there's a lot more financing money going in currently, I think the numbers are looking around about 16% up in q1 increase from 2023, to 2024, q1 so that's a really big increase, 16% quite a lot. And of that, around 23 billion euros have been invested into Europe in the first part of this year, and over 32% of that has been invested into the UK. So that outstrips both France and Germany put together Alastair. Now that's impressive numbers from the UK startup scene. So the money is out there, and it has been invested. There's some great success stories that have been around. So, you know, there are startups picking up, you know, from 100,000 to 200,000 here. There was one recently. It was a building platform called construction sites, and then going out to the bigger ones. One, one called, what was it? It was contact. They are an AI data platform, and they picked up 23 point 4 million pounds worth of investment. So the money's out there. So it's time to get moving. Yeah,

Alastair Cole 3:03

I mean, you know , to get series A you've really got to make big progress travelling down the path from, you know, an idea, to a functioning product that people are going to pay for. Impact is needed, talking about our impact over the last five years, working with startups, we've helped them improve their clarity around their sales, which increases their confidence and their win rates. Demonstrated solid ROI crucially reduced stress and increased happiness. Is happiness for tech startups. So that's our impact. And fantastic to hear that news. It does feel like the climate is changing. There is money out there. We've been helping a lot of our clients go after bigger enterprise deals, as they seem to be spending a little more. So that it does feel like it's going the right way. If we dive into this topic of funding, we've put a, we see the early eight stages of funding in this way. You know, pre seed is first, then seed and Series A, you know, the series B and C. But Kiran, maybe you could talk through how you think about the kind of areas of focus for startups in these different rounds and the activities and turnover that they've got. Talk to us about pre seed, what's happening in that area, just for clarity for people on the call,

Kiran Gill 4:39

Okay, so pre See, realistically, if you're in this stage, is that your product's probably in its first kind of iteration, maybe the second iteration that it's gone through. You're pretty much finding out whether the market actually wants your product, whether there is a market for your product, whether your idea is out there. Can it make a difference, and is it fundamentally going to generate sales? Because before you even start looking at investment, that's what the VCs or investment houses, wherever you're going

Speaker 1 5:15

to go for many years, and I look at business plans and I would look at business plans, and that's what I was looking at, what you're doing,

Kiran Gill 5:32

what VCs are interested in. They want to see profit. They want to see acceleration, and they want to know that they're putting their money into something that can go so that pre seed section really is for you, as a founder, to get those first early sales in, prove that your business is actually doing some is viable, that there is a market out there for you to get those first lot of sales in, so that you can then go to wherever you're going to go and raise money from to say, You know what, we're making money, invest more with us. Then we can take our business. We can supercharge our business to the next stage.

Alastair Cole 6:06

Yeah. Okay, helpful. And then what about where we're where we're focusing today? What high level things should people be thinking about in that, in that Series A round, how would you describe that? Okay,

Kiran Gill 6:19

so if you've got to seed, that means you've got a viable product and something's working for you. Now, the golden rule is, if you're going to be going for series A and it's not a golden rule, it's a rule of thumb. The number that keeps being bandied around is around about a million pounds or a million dollars, million euros, whichever way you want to look at it, of sales coming in, turnover coming through the business, that's showing that you have got it. Now, that's minimum, I would say, once you hit that golden number, you know that you're ready then to start looking into getting investment into the company, to accelerate you from seed to series A Now remember, this is where the bus this is serious acceleration that, that acceleration there is going to be mainly about sales and marketing, and it's going to be about pumping in and making sure, at this point your product might be being redeveloped. You might be doing some tinkering around the back, but tell you the truth, the vast majority of the money that you're going to be bringing in is going to be about accelerating your sales and your marketing operation.

Alastair Cole 7:20

Yeah, yeah, absolutely. And, and, you know, it's critical for investors that they can see the return they're going to get right. They want to know that this is an entity that can, that could scale right. And it comes down to unit economics. Do you think so? Does that make sense? For every dollar they're putting in, how many dollars are they going to get back? Because obviously, and the better the metrics are in terms of those unique economics, the easier it is to demonstrate growth and hopefully for them to generate a return. We've picked out a number of our favourite investment metrics, you can go and get more online as kind of an exhaustible number of metrics you could pick. And we're going to have four more that we want to get into and cover off today before we dive into those, I just want to explain that we're doing something a little bit different this time. We're going to be taking questions throughout today's session. We'll cover off at the end anything we don't get to so if you've got any questions as we go along, fire them into the comments on LinkedIn, and we will get to them at some stage, I hope so. That's the question side of things. So Kiran, my friend here, what you know, which fraud we're going to cover? What were the big ones on this big, big investment metrics in your opinion?

Kiran Gill 8:52

Okay, so remember, we're looking for, from a point of view of an investor, let's call them, you know, a VC, just for argument's sake, a venture capitalist, what they're going to be looking for are key metrics to show them that your business is successful where it is at the moment. They might not actually be even interested in your idea, not always. If they're a true investor, what they want to know is, are you making money, or are you going to be wasting their money going forward. So if you look at these ones, the major one is looking at something as activation rates. Tells you that your product is being used by other people. Now that activation rate might be a top line number, and it should be then going into the actual metrics of how many people are actually then paying for that product, but the activation rate might be great to show people. Look at the premium version. We've got X amount of downloads happening. People are going on there. They're hanging around. However, there might be a problem from activation going to paid and again, from a VC point of view, that might not be a red flag. That might be an amber. Flag in a sense of saying, Hmm, hello. They've got something that people want, but they're having problems taking it to the next level. So that's a really interesting metric, and it's a metric I would be definitely looking at for a tech startup that is in that world where you know they are doing activation rates, where there is a premium. However, if your product doesn't have a premium, activation rates aren't going to probably be something that I'll

Alastair Cole 10:22

be looking and that so, so that's an interesting area to look at. The four big ones that we've picked today that we're going to dive into now in some detail, are these four annual recurring revenue, customer acquisition cost, lifetime value and churn rate, the four of the really big ones on here we, as Kiran, outlined activation rate, really important burn rate to gross margin, ultimately, is what it's all about, and NPS is critical In terms of whether people would recommend your product before we're going for are these four. And so we're going to fire straight off and get into annual recurring revenue. Now, a lot of the startups we work with charge subscriptions. They're SaaS based, and it is monthly, but you can see fluctuations in months, and so looking at a compounded monthly is interesting too, but, but we've picked annual. Why are we coming out the gate with this as number one? Kiran, I think

Kiran Gill 11:34

it's just a ballpark understanding of whether you've got a business that's making money or a business that's not making money, that would be my first question. What's your turnover? Now, I know that turnover tends to be as the old, old saying tends to be, what is it? A turnover is insanity, in the sense of, is vanity and profitability is sanity. So the profit is actually what really matters. But tell you the truth, the vanity of saying that you put a business that turns over two and a half million pounds, that's nice, okay, doesn't really help if you're burning 300 pounds a month, 303 million pounds a year, and got a loss making business there. However, people normally talk about turnover, so the annual recurring revenue is really interesting from a business point of view, because as a VC, it gives me an understanding of is your business making money? Have you got money coming in? I would then go one step down to go to the monthly recurring revenue, because I want to understand whether the business is making money month on month, which months are good, which months are bad. Why could that potentially be and I'll be going into those this again, I probably would marry this up with the burn rate to understand how much money you're spending at the same time now, at an early stage, or a company in its early stages probably is burning more money than it's making, because that's where the risk factor is. You know, there's development money, there's all this happening. However, there's a lot of startups out there now that are bootstrapped, that are making money and can show profitability even at this stage. And tell you if I was an investor, that would interest me?

Alastair Cole 13:09

Yeah, yeah, absolutely. And that's that. It's almost that transition, you know, it's hard to demonstrate Predictable Revenue right on a monthly and yearly basis. That's why AR is so important, because it is that predictable income, and sometimes startups fail to or they're unable to demonstrate that kind of ongoing income, and that then for an investor, that's going to lead to concerns about longer term viability, right? Which is why that kind of sustainable revenue is so important. Let's, you know, I'm keen to get into the others, but you know, how, how do you like to get that information from from startups that we're working with, what Kiran, what's your What are your recommendations on either how that's tracked or how that information needs to be wrapped up, to be shared with investors?

Kiran Gill 14:13

So obviously, if you're putting that into a CRM system, that can be tracked, and I've got a single, single source of proof, as we always say, the best place to be, because, if it's been written on a on a spreadsheet or somewhere else, obviously your your your accounts, are going to be showing those numbers as well. So it's a very simple way. As an investor, I'll be looking at your I'll be going through your accounts with a fine tooth coat. And I used to love doing that as a banker. That's all I did. And you see anomalies in there, and you can see whether there's truth. So if somebody's showing you a projection of something, and they're showing you their business is going to be turning over this realistically, your accounts are going to be showing me a similar kind of picture. Now you will have a forecast. You will have mini accounts that you can show. So the investors say, look, this is where we are. Here's a snapshot for our first three months. These are our sign up rates. This is what we're doing in turnover. This is a great way to actually verify what you're actually showing to the investors. This is where we're going. What I also want to understand from an investor's point of view is what's the forecast for success going forward. So your annual recurring revenue is what you are doing now. That's recurring. I also want to understand what's going to be happening in the future as it goes along. Because remember, from a VCs point of view, and if I'm an investor, and let's go one step back, where does the VC get their money from? They're getting their money from institutions or individual investors who are spreading their risk along many different investment vehicles. A VC is just one way of investing money. Now a VC, for me, is personally a high risk entity, mainly because you don't know whether these startups are going to be successful or not. However, as an investor, I'm happy to put 10% of my money in there, but I might want to put 10% of my money into gilts or bonds or into other investments where I'm guaranteed a return. They might be smaller returns, but I'm going to get my money back. So as a startup, this is who you're competing with. You're also competing with other startups, but you're also competing against other investment potentials, and to tell you the truth, other investment property stocks and shares currently are ridiculous. Returns on stocks and shares, putting your money just in the bank account is ridiculous, and that's why you suddenly saw a massive drop off in investment in the last five or six years, mainly as interest rates went up, startups just weren't any longer seen as a viable way of making money. That's coming back, and the annual return, returning recurring revenue is a great way to show businesses. Hey, you know what? You've got something here making money, or you've got something here that's selling you need to look at us a little bit more in detail.

Alastair Cole 17:01

Yeah, thank you. That's super, super insightful in terms of AAR, in terms of demonstrating it and showing it to investors. You know, you could argue that our recommendations would be the same across all four and, you know, we recently did a show on killer presentations and how to share information. Ones that spring to mind, early ones for AR, all the others, are about knowing, knowing your audience, so understanding who's going to be in the room, and how you can tailor the demonstration of AAR or any other numbers to them, you know. And there are lots of other other tips that we're going to cover off later in terms of how to present, generally, to investors. So we'll get into that. And that's quite exciting, a kind of summary of our top tips for startups looking to see if they feel like their air number is too low, Kiran, right? Ultimately, they're not generating enough income. Sales is one of the strongest areas where they can improve their AAR by generating more leads, closing more business, and looking after customers in a better way. And you know, upping your sales game, not just to improve performance in AAR, but also to get your sales house in order, so that when you are going for series A your your sales engine is more professional, it's more robust, the numbers are stronger, and there's more confidence behind it. Because confidence is is really important, is that one of the kind of our big seven areas of startup sales areas that you would you would pick from strategy all the way down to continuous improvement that startup should be focusing on to boost their Arr,

Kiran Gill 18:47

Well, it depends on you. I think it comes down to the quality of your sales engine. And the part that always sticks out for me, working in complex sales, was the people that are selling your products. So you know, if you're selling something that is not a product that you're going to be selling over the net, or that actually face to face. This is where you can really make a difference, having a salesperson who knows what they're doing, that has all the material in place that can go out to the market and actually talk to people confidently about the product and be able to get it across the line. You know, selling 1000 units to one customer is so much easier. Well, it's so much more profitable than selling one unit at a time, isn't it? And so I think that's your team structure is majorly important at Series A, and this is what we're talking about here at Series A, you should be you should know what you're doing in your sales department, but you're missing certain components and maybe a few little things in your sales team, just to make them start moving that extra bit to start making really big sales, you know, where you sell 1000 units instead of selling 20 units? Yeah,

Alastair Cole 19:55

and that team structure, that is the second area that we've. Identified of seven that are absolutely critical for startup sales success team structure. We'll come back to the 360 later. Thanks. Let's, let's skip on to our second you know, demonstrable metric that is really key to bag investors, customer acquisition cost, right? The cost of getting that customer into the business is so important. Obviously, you talked about, you know, additional costs exceeding ARR at the top of the show here, talk us through a little bit about why customer acquisition cost is so important, Kiran, and what that means to you, and how it should be, how it should be, tracked and demonstrated to investors.

Kiran Gill 20:44

So customer acquisition costs are mainly everything that it costs to get that customer. So that's all your marketing, your salespeople, anything you're using all the platforms or the technology, and you need to put that all together. Now, obviously, when you start the business at the start, your customer acquisition costs tend to be higher, because you know you're winning customers slowly, and as it goes along through the year, you're you can suddenly divide that by the 10,000 people that you bought one this year and and suddenly your customer acquisition costs tend to be lower. So this is the way you need to look at it. Now, this all depends on how much your product costs, and the rule of thumb, you know, so if something's more expensive, it's going to take longer to sell it, potentially, that means there's a lot more effort involved. That means the costs are going to be higher. If it's something that's been sold at a lower price, again, you would expect, again, it's going to cost more than the product initially, but then what you're expecting within three or four months of that customer being with you, that suddenly that turns around, and then you're making a profit from that person. So the major thing with when you're looking at customer acquisition costs is, first of all, has the company or the startup you're speaking to calculated everything they've got everything in there, and are they tracking this? And what's their plan on either decreasing it or upping the amount of customers they're going to be bringing in so that number gets smaller to show. Hey, investor, don't worry about this. We know what we're doing because we're actually tracking these numbers.

Alastair Cole 22:17

Yeah, and that, you know, startups grappling with the two middle ones here. So customer acquisition costs are so important, and it's that balance with the lifetime value of customers that's so key, right? Startups struggle, sometimes high customer acquisition costs. And they can, they can very quickly get out of, out of control customer acquisition costs, because if you go on a new marketing or sales campaign, you can invest in that, and that doesn't always necessarily deliver more users or more paying customers so that, and it's that balanced against our third metric, the lifetime value that's so important you want customer acquisition costs to be low, obviously lifetime value to be high and lifetime value is really difficult. You know, talking about having to have high quality customer success, and that's something that we don't always see from startups. They're focused on getting customers in the door, not keeping them. What are your thoughts on lifetime value and how does that need to be demonstrated to investors? Kiran,

Kiran Gill 23:23

I think you covered it there. Alastair, you said it perfectly. It's customer success, lifetime value, because people tend to forget the customer success kind of costs that come in afterwards, because you want to keep them clients as long as possible. To show that, yes, our customer acquisition costs were slightly high, but we're keeping people for 18 months, two years, whatever it might be, they never leave us. And to that point, then your customer success comes in. But then you need to start taking that number away from the lifetime value, to say, Okay, we are spending a bit on customer success here, but look what we're bringing out to the end of here.

Alastair Cole 24:00

Yeah, critical. And then the fourth, the fourth one we want to pick up on is, is churn rate, right? And we talked then about keeping customers for a long time, the importance of a lifetime value, obviously, letting them leave is a disaster, right? You spend so much time getting them in, so much cost getting them in. You know, what's your views on the importance of churn, my friend, and how, how that needs to be, you know, demonstrated, or what should be tracked from a metrics point of view, to make investors happy at the series a point,

Kiran Gill 24:36

you need to be tracking your churn rate monthly to have an understanding. The big thing about churn rate is it gives you an understanding from the investor's point of view. First of all, is your customer success working? And also, is there a product market fit for your product out there? Because obviously, if you're growing your base and people aren't leaving you, it shows the investor, hey, that idea. Deer actually has a chance, and there is a need out there for it, and we're keeping our customers in play. If the churn rate starts getting a little bit out of kilter, I'm thinking over 20% here, that would give me a red flag of thinking, hold on, there's a problem here, because they're not keeping people now. Is that because there's no need for this product, or is it because this product isn't good enough. And if you start thinking about if you've got a small market, let's say the UK. Now, the UK is a large market, but in the grand scheme of things, it's quite a small market. And if you're only looking at a certain market, and we're only selling into the UK, how long is it going to be for us to go through all our customers and we've turned everybody in the market hasn't got anybody else left in there, and what's our way of dealing with this? So the churn rate is another great indicator for me to tell me this business is actually doing what it is now. Again, if the startup can't demonstrate to me that they're tracking this correctly, and I haven't got kind of trust in the numbers they're giving me, because it's just on a spreadsheet or a nice PowerPoint. If I just give me a number and think, Oh, that looks nice, however, when I start digging into the numbers in the background, if they can't show me where this is coming from, tell you this now.

Alastair Cole 26:18

Yeah, so thank you. That's, that's the four. So churn rate, absolutely critical. And you said something, you know, really important just now, which is about how numbers on a spreadsheet and how it's actually shown. So, you know, we've covered off those four. You talked also about, you know, activation rates, which are important. You've got to nail these metrics, and you've got to get them across. And part of that is how they're actually presented in the session, you know, which is about knowing the audience. It's about having a story to tell that has a strong hook. It's about not reading from the slides. It's about staying focused on the benefits for the customer. There. There are, you know, 13 top tips that we presented in previous, previous shows that we did, and that you can get on our website, or go to the sales scoop.com 13 classic presentation tips. But I'd say in terms of investors and series a you know, there's, there's how you're presenting hard data, right? So, sorry, hard growth through data. So that's about being specific with the numbers, you know, using decimal points, and making sure that the numbers are both accurate and up to date, but also very specific. You've got to pick the right measures. I mean, we've got four there, and you've got to mix up how you show it. You know, eight out of 10, versus 4x versus 79.2% so a different, different way of showing metrics, so that that brings out the you're demonstrating growth or showing progress in the most impossible way, and also the kind of soft growth. So when you're pitching to investors, it's about talking about how the day to day is different now, how the business has changed, how you've got a desire to catch the next wave and keep building momentum. So how those are shared is really important as well. You touched earlier Kiran on team structure, and I mentioned that is one of our seven key areas that we look at, along with sales strategy, tech stack, lead generation deal closing, customer success and continuous improvement. And those are those that are lifted from our 360 sales diagnostic product. We sat down for a two hour interview with tech startup founders. We analyse their capacity and gaps and opportunities in their sales function, and we produce a 25 page personalised report. Takes about a week to do, if you're interested in the 360 to understand where your sales functions and whether it's ready to go for series A money. Then you can go to our website, the uplift partnership, comm forward slash 360 when I look into the comments, my friend, I see that we've, we've, we've been too, too bold. It's not been a safe enough place for anybody to ask any questions this time. So I've got one for you, if you're if you've got a product with a much lower price point, right? Have you got any high level tips on what you could do to reduce your cost of sale, or what should I be doing for cheaper products to get the cost of sale down.

Kiran Gill 29:43

Wow. So there's two ways of looking at this, where you could have a clear scale strategy here. So if you're let's say you're selling something for 10 pounds, just ballpark figure, 10 pounds subscription per month. So the major thing here is that you either. Have two strategies. When you first die of that, you either are trying to sell a lot of units to one person to show that, okay, Kiran is going to cost X, and we're going to have a marketing budget and everything, but we've just sold 2000 seats or 2000 units to one person, and that's why we've done this. Now. That's one way of doing it, and that might be a great way of showing reduced cost of sales, because obviously I'm selling big, bulky items, and I'm selling them mass and that's because I'm giving my cost of sale, the worst probable, the worst mistake I see from companies is where they've got somebody who's expensive. Let's say you've got a killer in yourself, and that person is selling one or two units at a time, and it costs 10 pounds a month. It's just not sustainable, yeah, and it's just going to go so that it has to turn into a self service business where you're buying this without any interaction with a person, straight to the website, click, click, click, credit card details are gone. It keeps this cost of sales down nice and low. That salesperson, that you know, that salesperson that you've got who should be trying to sell the big unit could be doing other things in the company at that point. They could be doing customer success. Remember, we're a startup. We're wearing many hats. We don't wear just one hat. We're wearing about 15 hats. And depending on the minute of the day, of the moment, I've got a different hat on. I might even be wearing two hats at the same

Alastair Cole 31:24

time. Well, thank you. Big focus on B to B cell service. So we're out of time now. The last thing is for us to just talk about what's coming next. We're at a sifted summit next week. If you're there, tap us up. Let's have a coffee. Say hello. Our next live sales scoop is on the 15th of October, becoming a confident founder seller. We're going to be talking about the evolution of the role from founder and founder seller, and equipping founders with more sales skills and more sales capability. That's all that's it for today. So thanks very much for your time, expertise and insights, my friend.

Kiran Gill 32:06

Thank you very much, Alastair.

Alastair Cole 32:09

We will leave it there. Bye for now.

Kiran Gill 32:11

See you soon.