From Seed to Series D: How to Navigate the Startup Fundraising Process

In the startup world, there’s nothing quite as thrilling as raising venture capital.

As exciting as the process can be, however, it is also an unpredictable time, and can be exhausting for CFOs and finance teams. The process is different for every company and every industry, and also depends on your business model, investment trends, and market timing.

With all these moving parts, it's best to learn from experienced professionals who have been through the process before.

That’s why we convened our CFO Connect community in Barcelona on Tuesday November 26th to discuss best practices for navigating the startup fundraising process. During this discussion, we heard from two CFOs about their experience with successful funding rounds.

About our experts

• Eduard Ros, Chief Financial Officer at Glovo (€169M in series D funding raised in March 2019): Eduard has a strong background in the banking sector, and previously worked with Deutsche Bank on M&A projects around the world. He also co-founded nutrition startup Nutrino Health.

• Javier Gorena, Financial Controller at Zinklar, formerly Head of Finance at Nautal (€3M in early stage funding raised to date): Javier is an experienced finance professional, and has worked with EY and startup Nautal, as well as other finance firms.

Thanks to Eduard and Javier, we had an informative discussion on how to survive the fundraising process, including what to expect from the different stages, and what CFOs can do to prepare…

Eduard and Javier’s experiences with fundraising

To kick things off, our two experts outlined their experiences with fundraising.

“I started my career in the finance areas of companies, then in consulting at EY,” says Javier. “When I moved to Barcelona I had the chance to restructure the finance department for Nautal, and I helped drive their fundraising for the next three years.”

“Currently I’m with Zinklar as Financial Controller, and I’m structuring their financial department and overseeing their series A fundraising.”

“I started my career in investment banking,” says Eduard. “I was in Deutsche Bank for five years, then I founded a company with some colleagues in the nutrition space, Nutrino Health. We raised around €10M, then in September 2017 I joined Glovo.”

“Today I’m leading the finance department. When I started we had 80 employees in three countries, now we have 1,500 people in 26 countries. I’ve been part of series C, €150M, and series D, €160M. That’s a big part of my day-to-day responsibility.”

What is the role of the CFO in preparing for the fundraising process?

“It depends on the stage of the startup. That’s the most critical point,” says Eduard. “For emerging companies, one of the co-founders takes the title of CEO, though eventually you end up doing a lot of the same things. This includes preparing for fundraising.”

“Normally the CEO or founder is the one to pitch, then the others take care of the second discussions with investors. With later stage companies like Glovo, you start having a more structured process. You have a list of investors to approach, and you work through them.”

So, what about approaching investors? What does that stage look like?

“Normally, the CEO gives the strategy speech, and when you go into details about KPIs and targets, the CFO takes more of an active role,” says Eduard. Once you go from term sheet to final deal, the CFO is running the show.”

Javier agrees. “With growing companies, you don’t have the distinction between CEO and CFO quite so much. The founders and co-founders are in charge, but the roles are more fluid. When you go out to investors, you all pitch in to get the job done.”

How do you determine a suitable capital structure?

This is another fundamental fundraising question: how should you determine the best capital structure?

“There is no such thing as an ideal capital structure for early companies,” says Javier. “It’s just a question of raising what you can get. There aren’t that many options with smaller startups, especially those with disruptive business models.”

“Instead, you have to look where you can, like with angel investors or public debt. The only limit is how much you can raise. You probably won’t raise a lot, but you have to do the best you can.”

For Eduard, capital structure is about setting two key parameters. “First, how long do we want to exist on this money? Normally the rule should be 12-18 months, or maybe 24 if you do things really well.”

“Second, there’s the question of company value. Let’s say you want to raise €20M, but your company is valued at €5M. The dilution will impact your business. We all think it’s great to raise money, but you don’t want to get to series C or D and only have 5% value. That’s something you definitely need to take into account in the long term.”

Is it possible to raise 'too much' money? What do you need to consider when there’s a great offer on the table?

“It’s good news, but you need to take a lot of care in this situation,” says Eduard. “For people who are used to bootstrapping and putting every euro to work, they might lose some of this culture. That would be a big mistake. Some people start signing up for fancy offices, but when you expand, you have more salaries and more fixed costs. The money doesn’t last forever.”

“You want to maintain a lean approach, and focus on doing more with every euro. That’s the way you need to think about it. Don’t go crazy whenever you receive a good offer, because your next round is coming down the line, and you need to stay in good shape.”

“That’s right,” says Javier. “When you close the investment round, you have to spend wisely. Everything has to be balanced, and you have to stick to the business plan and not deviate from budget. It’s important to be strict, and invest in the most valuable asset: your people.”

To what extent should the CFO be involved in pitching to VCs?

“The CFO has to ensure the numbers are really clear,” says Javier. “If you’re presenting plans for growth, you have to talk about how all of your teams are going to grow: marketing, sales, everything. The CFO’s main role is to ensure everything is coherent, measured, and real.”

“In earlier stages, the CEO will be the one pitching,” says Eduard. “Then, in the later stages, other members can help to pitch as well, and you can start segmenting your investors. If you have a big pocket in the room, you get the CEO involved. For the smaller investors, you can bring in other members of the team. It’s very important to decide where you put the CEO’s time.”

How can you adjust your pitch for global investors?

In fundraising, it’s crucial to know your own business inside out, and to be crystal clear on what you have to offer investors. However, it’s equally important to understand the priorities of your potential investors, and to know how to shape your pitch to their interests.

So, how should you adjust your pitch when you’re courting global investors as well as local ones? Eduard has a few pointers.

“In Spain, there are a good number of investors to approach. If you want to raise €5M or even €10M, you can do that locally. However, when you want to raise €50M or even €100M, you need to go global. For Glovo, we had French and Japanese investors involved in our series B. This doesn’t change the level of professionalism you can expect - it’s just about bigger numbers.”

For Javier, shaping a pitch for global investors is also about knowing what kind of expertise you’re looking for. “We wanted to optimise our investor capability, because they have great industry know-how. It’s fine for investors to just contribute money, but it’s great to have investor representation on the board, and to take advice on how to keep growing.”

Another important question for CFOs pitching to global investors? How to choose a lead.

“Having a lead investor isn’t always necessary in early seed rounds,” says Eduard. “But for the larger rounds, it can be a great way to give certainty for other investors. They see the lead investor, and they trust their due diligence and their name. This becomes an anchor for other investors to get involved, and it helps attract a broader pool of funding.”

How should the CFO use data to tell a great story?

“In the early stages, you just have to prove that the company is sustainable and scalable,” says Javier. “You don’t have to drill into a bunch of details on KPIs and graphics. You just have to be objective and trust in your numbers. This will give a picture of future growth.”

“At the beginning, you’re selling a dream,” says Eduard. “You need to get your investors on board with that dream. Later on, you can get into the details, and run through the finer points with the VCs.”

“You’re selling a story about what you want to do in the next two years, but you need to be cautious about what you say, and make sure your statements are backed up by data. They might even ask you for metrics you’ve never thought about before.”

What is the CFO’s role in reviewing term sheets?

“Your overall job is to get to a win-win deal with investors,” says Javier. “You need to work alongside your lawyer, of course. The CFO can’t know everything, and you need to make sure you have the technical advice.”

“The CEO always looks to the CFO for their views on the term sheet,” says Eduard. “Then, as CFO, you can look to the lawyer and ask them what they think.”

One last tip? Don’t rush anything.

“With experience, you start to see what looks good, and what doesn’t,” says Eduard. “It’s important not to rush this. If you need to delay by a few days to get things locked down, then don’t be afraid to do this.”

Conclusion: take some advice from the experts

No matter what your role is, the process of raising capital can be exciting and stressful. You have to be crystal clear on the strategic direction for your company and aware of other changes in the market, all while understanding what new funding means for your team.

Our big thanks to Eduard and Javier for taking the time to meet with us and share their valuable advice, guidance, and observations on what to expect from the fundraising process.

The CFO Connect community is a great place to ask tricky questions, share your opinions, and expand your network of finance experts. If you’ve found this recap useful, then be sure to join us in person for our next event!