From Seed to Series A - Demonstrating Growth

Automated Transcript

Alastair Cole 0:00

Hello, good afternoon, and welcome to The Sales Scoop. This is a weekly live show for technology business founders who want to improve how they sell. I'm Alastair Cole, your host for today. I have a bachelor's degree in Computer Science and Artificial Intelligence and two decades experience in sales and marketing. I’m delighted to welcome my co-founder and co-host for the day. Kiran Gill. Hi Kiran,

Kiran Gill 0:35

Good afternoon Alastair. Good afternoon everyone. My name is Kiran Gill, co-founder of the uplift partnership, and I've got 20 years worth of experience in B to B sales and finance.

Alastair Cole 0:48

Thank you, my friend and we, we've got an exciting topic on our hands today, helping businesses understand the steps they need to go on to move from seed funding to series A And crucially, closing that Series A round, which is a really, a really big deal, and we're talking about, you know, it's about demonstrating that you've found, you know, sustainable, ongoing, growing product market fit. You've got to show people, you people really care about what you've built, and the business is flourishing. And you know, to get to series A you've got to have made so much progress traveling down the path from a good idea to a great business. The challenge is, you know that all sounds very easy, it's pretty tough out there at the moment, isn't it, for people looking for investment.

Kiran Gill 1:42

Yeah, it is Alastair. It's been a brutal 2024, I think. Last year, when we had a conversation about this, just about sifted or around that time, there was a lot of optimism in the market. People are expecting interest rates to drop. That means more investment into companies, and things were looking like they were going to move forward, but it just didn't transpire. And 2024 went down to be one of the worst years, or in the last five when it came to investment. So underlying figures just show that there was a up to 30% decrease in investment from 2023. That's massive, if you think about it. In the UK Tech kind of end part of things, we were looking at around 12 point 4 billion worth of investment. Again, that was down 25% in 2023 so it was just, it was brutal. If you were looking for investment last year, there was a good chance you probably didn't get it.

Alastair Cole 2:43

Yeah. I mean, you know that sounds, that sounds quite bleak, but there are a lot of businesses out there that are managing to to get there. We've seen, I mean, I had a quick look on CrunchBase over the last few days to see who has been closed series A in the last 30 days. And, you know, five there in the last These are the last 30 days, actually, not 90 of who's who's closed. Storm harvester there in the middle, who raised $ 8.4 million for their Series A, and their AI powered water management software, going great guns. And interestingly, when you look at the press release Mike Clark apartment at y, f m equity that led the investment into storm harvester, it's no surprise that actually, in his quote about one of the reasons they've gone in investing in them is their their positioning in the marketplace, right? And this is effectively a kind of part of their sales function. And not only were they first to market, but they've managed to maintain that leading position, they're stimulating demand from potential buyers and now looking to to expand so investment is being made at that series A level, but it's challenging to get to. And you know, I think one of the early questions that we want to cover off is types of funding that are available to startups and businesses that are looking to grow. And this is much more your area of expertise than mine, my financial friend, but we've tried to simplify it and lay it out. You want to just talk through these, these early funding rounds, Kiran interviews them?

Kiran Gill 4:28

Yeah. So if you're, depending on where your company is, you're going to be in one of these three phases. If you're, if you're listening to us today, hopefully you might be even further down the line. But if you're looking around the pre seed market. That means your product, you're developed your product, it probably hasn't gone to market fully. You're still looking for product market fit. You might be turning over some money. That would be great if you are. But if you probably not, it might be early stages for you, and you're looking for. That pre seed funding. So you're still trying to figure out whether this product is going to go to the market and is going to make a difference. Then you move up to seed. This is where, realistically, you do understand where you do fit in the market. You understand who your potential customers are. You understand how big the market is. You understand the competition. And you have a very, very clear understanding of what you're going to do in the next three years, five years on growing this company, and how to do it. And that's what we would expect a company in seed to know. You know how we're going to do ourselves. How are we going to be able to make the money that we need to make? How do we keep our customers? How do we make sure that we hit all the metrics that our investors expect? And finally, series A that means you're going great guns. By this time you've gone through those early periods, you understand your market, you've got yourself a good market share, and you're growing. And this is where you're going into that market, and you're saying, hey, investors, give me more money. Let me accelerate. This is where I'm really going to hit the ground running.

Alastair Cole 6:06

Thank you. I mean, that's incredibly helpful to lay it out clearly like that. And you know, the purpose of this show is to help founders demonstrate their growth, right? And in order to move up to that series in a column, and it's one thing to have changed, to have grown as a business, culturally with your people and also financially, with the sales numbers, but demonstrating it is a different kettle of fish. And we see a lot of founders struggling to articulate their growth and demonstrate that. And one relatively, you know, simple way there's a lot of detail under the surface is through investment metrics. And there are a lot of these terms that you'll have heard lots of lots of jargon here, you know, CAC, customer acquisition cost, churn rate, what on here, going to float to your boat? Kiran,

Kiran Gill 7:03

The first thing I would always look at is customer acquisition costs, or annual turnover. It is one, isn't it? It's the AAR, what is the annual recurring revenue for the business itself? What really makes you think about, how much are you turning over? So is the business actually making some money? And then, it would be customer acquisition costs for me, because at that point, you need to understand, how much does it cost you to actually bring a client in? Because if it's costing you to bring a lot, if you're spending a lot of money on trying to bring clients in, and your turnovers are high and your costs are high, then you're not a profitable business. And again, this is all things that an investor, whether it's an Angel, a VC, private equity, a bank, your mom and dad, whoever it is, they should be asking those questions.

Alastair Cole 7:53

Yeah, absolutely. And so look, there's a plethora of metrics there. They are really important. We've picked out, think five that we want to cover, that we think are the most important for series A investment that we're going to dive into a little bit now. And we're going to start with annual recurring revenue, you know, which is absolutely critical, which we're talking about demonstrating, you know, sustainable, sustainable growth, sustainable income. Really, it's so important, you know, it's demonstrating that there is a solid business there. Moving forward, um, you know, you touched on it already. You know, we're leading with it. It's the most important thing. They're going to look at Sure, monthly recurring revenue is important, but you're going to get seasonal, quarterly, monthly fluctuation. So Arr, really, is really important. Have you got any more thoughts? Thoughts on that? Kirnette, you know, we talked a little bit about it, but how would you expand?

Kiran Gill 8:56

It's looking at how your business is growing over a period of time, over years. So normally, if you're a startup, you've been in business for a good few years, and your ARR will basically show a story. What kind of growth do you have? Is it double digit? Is it triple digits? You know, you could go crazy here, but what kind of growth patterns have you had over the last 345 years to get to the point where you're going to series A and where you're asking for some serious cash? Here, people want to be able to tell a story from your numbers. So that's why it's so important. Yeah, we can go granular, just as you said Alastair. We can go monthly to understand what the seasonal changes are. But what's really important for me is understanding, are you, are you double digit growth in the business year on year? And that's the first headline metric, isn't it? It's, it's the first thing I would look at, just what are you turning over? You know, are you hitting those kinds of numbers, or are you getting this, you know? Oh, yeah, yeah. We're only turning over 250,000 And, but we're asking for X, Oh, hold on, you need to have a look at this. Yeah.

Alastair Cole 10:05

I mean, you know, it's about those customers annually, and we see some businesses struggling at this stage, holding to convince investors because they're not able to, you know, demonstrate there is that Predictable Revenue right at a substantial scale, and when you can't demonstrate that, that is going to lead inevitably to, you know, concerns about long term viability for investors that are going to be investing that level of money, and often that happens with earlier stage startups. So, you know, larger businesses struggle less with that, obviously, but being able to demonstrate that and show the fine detail is absolutely critical. So that's number one. The second of our five is activation rate. And you know, this is really critical. Its activation rate is the number of customers that are moving in to take your product from you, bringing them to the door. So sales and marketing and self service online is able to get people in the door of the product. The question is, do they activate? Do they perform the handful of tasks that you set out, that you define are enough to warrant that they are now a proper customer. You know, often it's through onboarding, it's having used the product on a regular basis for a short period of time, maybe a couple of weeks, maybe a month, if it's a SaaS platform. But there'll be some activation criteria, and investors are looking at, you know, what is that activation rate like? You know, you might be spending money from your seed investment to drive people to the door. If your product isn't good enough in that early stage, then the activation rates can be low and they know that your onboarding isn't going to be strong enough. The third area, customer acquisition cost. You know, how much does it cost you to get them in the door and get them on board? And I know, as a cost cutting specialist, Kiran, you're always on top of our costs and our clients' costs . CAC is a big one for you. Talk to us about how we know what businesses should be looking to achieve for series A and how do they keep their customer acquisition cost lower?

Kiran Gill 12:28

So first of all, it all depends on if you're a self service business, that is whether you're bringing people to your actual website, and you're expecting them to convert from there without actually interacting with the salesperson, or whether you have a salesperson that's within your process. So both metrics are going to be slightly different, because if you've got a salesperson involved in that, this is where it gets more expensive. And if you haven't got a salesperson involved in that, the chances are that's harder to actually then convert, because you're expecting people to convert themselves on your website. So when it comes to customer acquisition cost, the way to look at it is, how much does it cost in your sales and marketing business, as a business to bring in the customers you've got so far? So this year, we've turned over a million. How much did it cost for us in our sales and marketing, and we can break that all down from our costs. How much did we spend on sales and marketing to bring in that million? That gives us a percentage kind of understanding. Now, realistically, depending on where you are, your customer acquisition costs in the early days are going to be very expensive because you've got less customers, you're probably spending a lot of money as time's gone on, and when you're going from C to Series A, this is where you really need to start showing professionalism. To say our customer acquisition costs are. This is the percentage compared to our turnover. So customers will cost us if they're going to make this much money out and win the year. It's cost us this much to win this client in. So that's fundamental. If a client or a company can't explain to me what their customer acquisition costs are, as an investor, that's a red flag. Straight away, I would be turning around and thinking to my to myself, the chances are these people aren't ready for investment because they don't understand what their costs are, yeah,

Alastair Cole 14:21

yeah, totally. And, you know, it's, it's natural that sales and marketing costs, you know, fluctuate across the year, but it is possible. We've seen it, where those costs rise and it 's not sustainable. You know, investment is being made in that area, the number of customers, the revenue is not generated and that becomes too expensive. Growth is unsustainable, and investors say, you know, your sales and marketing engine isn't functioning well enough in order to generate a return. And I'm out so customer acquisition costs are very important. There you mentioned, you know, lifetime value and a. Customer acquisition cost, which is in the bottom right hand corner. And obviously those two are fairly well tied together. Let's move on to the fourth, really key metric, which is lifetime value. And you know, this is absolutely critical, isn't it, my friend, you know it you work. We work so hard, right? You know, propositionally strategically to get customers in lead generation deals closing, to get them in the door. The question is, how long can we keep them in order to increase profitability? What you know, what are your What are your thoughts on how to demonstrate lifetime value and how to maximize it. So

Kiran Gill 15:42

lifetime value. This is where you're trying to show your business as being quite advanced when it comes to upsell and cross sell, because the lifetime value of a customer will fluctuate. Now, obviously, if you've only got one product, and it costs 10 pounds a month and the client's been there for the whole year. It's quite easy to show the lifetime value of these people, but the one thing about lifetime value is it's showing how many customers you've got and how much they've actually made over that period of time. So are you keeping your customers? So it's linked quite closely to churn rate and all of the other metrics. But again, it tells you a story. Are you keeping clients in our clients staying with you? Are they sticky? Are they still purchasing from you over a period of time, or are you losing them? And the lifetime value actually isn't that much when you look at it as an average that, again, is another red flag for an investor to understand where or potentially it could be there is potential in the lifetime value here, we're seeing that under utilized. And now what we can do here, with a couple of new products or different features, we can increase the lifetime value to really then build the market. Now, as an investor, that is something that I would be looking for is, how can we go into this? How will this business grow? If I invest into it? Because that's why I'm giving you money. Yeah,

Alastair Cole 17:07

and I think that growth is absolutely critical. That's why lifetime value is so important. If you're not able to extend that, the length of time customers stay with you that you talked about additional products and features, if you're not able to do that, and lifetime value was short, then, you know, it's the business is not evolving, and the future projections for that investor on aren't going to be good enough, which is why that that is an absolutely key metric, one of our our big five, and then the last one, You know, churn rate. You know, this is the number of customers who are discontinuing their subscription, if you're talking about a SaaS model, or they're stopping using the service after a period of time. And you know, high churn rates, obviously big, another big red flag for investors. I'm worried about what you might say, but you know what, what your feelings on, on, on, when churn rates are high, and what that's going to do to investors?

Kiran Gill 18:09

Again, look at what the market potential is. So I need to have an understanding, again, a part of your story to your investors, is going to be market opportunity within the market you're looking at, whether that's, you know, wherever it's geographical, or a demographic, whatever it is, what's the market opportunity there? Now, if you're showing me a market opportunity of millions, that's fine. However, if you're showing me a high churn rate, that means you're going through your customers very, very quickly, or your potential customers. Now that's a red flag for me, straight away. Now, where should the number be? Rule of thumb, your churn rate should be around five to 8% if you're looking for investment any higher, then we're talking this is going to get this is turning into a problem. Why are we losing customers again? This could be something, a product, or a new product or a new feature might be able to stem it, and that might be a part of your story to get investment. Hey, if you're going to give me this money, part of our kind of strategy for the next five years is to do this to bring our churn rate down. But remember, once you start giving investors promises that that's where you're going to do, that's what they're going to hang you by, because I'll come back to you and say to you, Well, have you invested? Where's the money? What's the turn rate? Now show me it. You know, has it come down? Where's this new product line? What is it done? Have we, have we retained more customers this year than last year? Are we bringing customers in? And then that links back into lifetime value, and then it comes back into AAR and yeah, all these other different things, yeah,

Alastair Cole 19:44

and we're going to get onto it a little bit later in the show. But what we're talking about is, in order to give yourself the best chance of hitting those promises that you've made, if it's about reducing churn rate, then you need to have more mature sales. Function right? A more mature sales engine that is more predictable, that you know you're on, on target for that reduction, rather than, you know, kind of crossing your fingers and hoping it's going to happen. And you know, we see businesses with high churn rates and and often it's a result of a mismatch between what's been promised right in the sales and marketing engine, or sales and marketing machine, and what happens when they they arrive and they go through activation there is that kind of maybe the product market fit isn't strong enough, and certainly any kind of disconnect there will lead to a high churn rate, and investors worried about the long term stability. And this is, this is where, this is why it's the long term that's so important. It's a bigger amount of money at series A expecting long term results, and you've got to have your business and your sales function Ship Shape and ready to navigate successfully growing the business over the over, over the next kind of 24 months. So, yeah, churn rate is a really, really big deal. So those are our five key metrics for any business out there looking to try and secure series A investment. As we mentioned earlier, there are other metrics too. There's loads of them, but those are our big five. Those are our big five. And I think you know that's that's great understanding those metrics and how you go about analyzing how the business is doing, but it's another thing entirely to be able to present and pitch that story back to investors, and you know, at the end of the day, it's like any other kind of pitch or presentation. You're telling a story about yourself. Any tips Kiran, for businesses gearing up to go and present or share their thoughts, any kind of watch outs or tips you'd give them.

Kiran Gill 22:07

Each slide has to have a purpose, and you need to be telling a story from last year going into the next several years, of what you're going to be doing and where you're going to be spending the money. So when I'm working with clients, and we're looking at their kind of decks that they're building for their investors to go, Hey, this is why we're looking for the money. My major concern, which tends to be, is, what are the numbers? And we've spoken about those, those major metrics that we're looking at there, and can you prove those metrics? Because that's where I'm going to try to trip you up if I don't want to give you money, or I'm going to end up giving you less money, and then how are you going to be spending the money? So this has to tell a story. The deck has to tell a story, and you've got to keep me engaged. And the way I always look at these things is, if I look at that deck, does it make sense to me? And if I was going to invest into my company, would I invest into my own company off the back of that deck? Yeah,

Alastair Cole 23:02

no, makes perfect sense. You know, the importance of really clear, specific and accurate data. You know, cannot be, you know, stressed enough, right? The presentation or whatever format you're delivering in, it's got to be tailored to that audience. You've got to have done your research like you would do on any other presentation about who's going to be in the room, what's going to float their boat, and mixing, you know, data visualizations and hard figures with, you know, hard growth numbers, but also soft growth numbers as well how your business has changed as a culture, how the operations have changed, as well as just the sales side. So you're telling a much broader story about how the business has evolved over the last 24 months and how it's going to evolve again over the following 24 months. If you get that investment, and you know it's okay for the story not to be 100% rosy. You know, not every technology business, not every startup, is perfect, and investors know this. The ones we talk to say that, you know you need to have most of your metrics there, but it's okay if there are a few hiccups, and actually, that's why they're giving you the money. You know that investment is going to be used to proactively address areas of improvement. So as a founder, when you're pitching you've got to explain your plan. It's okay to show where things are deficient. You've got to showcase the future plans, the leadership that's going to tackle that and the kind of power that you've got in terms of solving problems and evolving your business to the next level. So that presentation area is really, really important. One thing we've talked about before, my friend, was. Kind of practical advice, certainly for SaaS businesses and lower priced products. Is there any kind of practical advice you'd like to share, as WE you know, start to wrap up the show. Any takeaways?

Kiran Gill 25:16

Yeah, the major thing, and I think we picked on this before, in times past, Where? Where? If we look at it from understanding your sales model making sense that what your customer acquisition costs are has to make sense. So if you're selling something that is very, very low priced, but you have a very expensive sales process, or a very complicated sales process, that's, again, is going to be something that's probably going to trip you up very early on in your sale, very early on in your funding, by the time you've got to see it in series A you see, you should know where you're going with this, so the investment will be into your website. If you're a, you know a SaaS business that's doing self service. You know how to bring your customers in, and you know how to retain them. So just think about and for those of you who are running businesses that haven't got to series A yet and you're moving through the phases, think to yourself, where are we taking this? Yes, at the moment, we're doing self service, but it's heavily, heavily involving people. We know where we need to go. And this is, do you have an understanding of what your roadmap is over the next 12 months, and how do you get there?

Alastair Cole 26:29

Yeah, yeah. And that that detail roadmap, detail, the due diligence that needs to be done in your business in order to get to series A that that can all be, you know, underscored and professionalized by building out the maturity of your sales engines. A lot of our clients, one in particular, recently, has said that the work we did with them on their playbook and off the back of our 360 sales diagnostic was quite sealed the deal with the investors, because they felt like there was a robust, mature sales function in place after working with us. And that rigor for us starts with our 360 sales diagnostic product, which analyzes your business in seven core areas. We have 52 metrics plus 10 sales figures that we use to to produce that 360 score. You get a breakdown of the seven areas and an overall score for your business recommendations in the seven areas of immediate, crucial next steps and a revenue roadmap that charts the additional income that your business will be able to generate by implementing the recommendations into your sales function. So if you're looking for rigor in sales ahead of investment, the 360 sales diagnostic could be good for you. You can see more of that at the uplift partnership.com something else that has just dropped recently, our new wank paper, the Empowered founder seller, it's just 12 pages short and packed with 60 actionable steps you can take in order to become or feel more empowered as A as a founder seller, and I'll leave the QR code up there, briefly obscuring my friend. So that's down now, mate, so you can get the white paper at the uplift partnership com forward slash white paper. And as we're wrapping up the show, really, all that's left to do is talk about what's coming next. A week today, I'll be chatting with Louise Ballard, who is the co founder of theme.ai Louise is on a mission to supercharge AI literacy for businesses and also for students, and her platform that she's building at the moment is very exciting, putting the guard rails on a plethora of AI potential for businesses and other areas. So looking forward to chatting to Louise a week today on the future of AI and boosting AI literacy. If you enjoyed today's show and you're keen to watch our recordings back on others, you can head over to sales scoop.com where you can get recordings of all of our previous 35 shows we've done now. Kiran, 35 live shows. What a journey it's been in 2024

Kiran Gill 29:45

was a journey. Definitely it

Alastair Cole 29:47

was a journey, and no doubt 2025 is going to be even more successful. So all that's left for me to do is to say thank you. Kiran, thanks for your time and expertise. You.

Kiran Gill 29:59

Thank you very much. Alastair, no problem,

Alastair Cole 30:03

and you and I'll be back in a fortnight, topic TVC, but we'll be sharing that. Thanks very much for your time, everybody. We'll see you next time. Bye for now. Bye for now. Bye.