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Raising a Series A round is not an easy task. In fact, it is not a task that is all that well understood. But many of the basics of raising a Series A are much more straightforward than would first appear. We recently spoke with Mike McMahon, managing director of Chicago-based venture capital firm Jump Capital, to examine some of the more important points of raising a Series A round.
Of Jump Capital’s 20 portfolio companies about one-third are invested in early stage companies, one-third around the Series A round, and the last third in later rounds. This experience making investments at different stages gives the firm good insight.
“At the seed stage the idea is usually leading everything,” said McMahon. The capital really gets burned up really validating the idea.”
According to McMahon seed capital and seed stage pitches are focused much more around the possibility of an idea and the power of the entrepreneur driving that idea. When a company gets beyond the seed stage, the details become a lot more important and specifically measured.
When the time comes for Series A funding, McMahon said his company typically has two principles that guide their investments: milestone investing and matching with the right entrepreneurs.
Milestone investing is all about spending funds to acheive certain targets. McMahon said he tries to force people into structured goals of precisely where the capital will take them.
If an entrepreneur has specific needs for money like adding five enterprise clients, developing the next generation of the product or expanding certain marketing initiatives, “you’re de-risking the capital when the other side of the table is talking that way,” said McMahon.
Second, Jump Capital looks for potential investments that are looking for a specific type of intestor.
“I don’t think the other side of the table spends enough time saying 'who is the right partner for me?’” said McMahon. “Be very selective as to who you bring to your board table.”
“There are huge differences between venture firms, enormous differences. You really want to spend time doing your due diligence. Nine out of ten times I always ask: ‘who are you looking for in an investor?’” said McMahon. No doubt connecting with the right investors can be difficult. “The best way to get to the right VC is to do it through your network. It’s always helpful to have someone mentor you in,” said McMahon.
Jump Capital has “not done any deal that has come through brokered relationships, investment banks, anything,” said McMahon. “So network your way in through another investor, entrepreneur, person at an incubator. When it comes in random there is always a hesitancy to engage.”
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