6 lessons on Series A fundraising from Flatfile's cofounder

Having a breakthrough idea that will disrupt a market is one of the most exciting things about being an entrepreneur. But no matter how good your idea is or how well you’re able to execute it, you will likely have the same challenge as many startups: raising the funds to bring your idea to life.

At Flatfile, we’ve been fortunate to successfully raise close to $45 million in funding from notable investors - our Series A news release sheds more detail there.

How did we do it? First by developing a product that solves the common (and painful) business problem of importing customer data. If that was all, we’d have a nice lifestyle business, but we’re aiming higher. Our vision is to enable seamless data transactions between every organization in the world.

As good as our idea was, we still needed capital to scale our team and further develop the technology. That capital would come from sharing our vision - and evidence of the burgeoning data onboarding category - with like-minded investors. Here are some of the specific lessons we learned after securing our Series A funding.

When we were starting the process of raising our Series A round, it was important to understand the difference between how investors view seed funding vs. Series A funding. The seed stage is all about finding an investor who believes in your vision at a high level, that the market for your product exists, and that you care about it and are focused on it. Once we connected with investors that held that belief, we had the capital resources needed to take our business to the next step.

The focus changes for Series A. At this stage, investors want to know more about the evidence that demonstrates you are on the right path. In many cases, investors will use a common standard to prove you have reached that stage: e.g. you have 100 customers and a million dollars in recurring revenue. Hitting these milestones proves that a market exists for your product and that you’re capable of capturing that market.

As important as it is for the investor to vet you and your company, it’s just as critical for you to choose the right investor. In our case, we wanted to partner with investors who understood that we were doing more than just building a data importer, and that there was a much bigger market opportunity. We used that standard as a filtering mechanism to exclude investors who couldn’t see beyond just a plug-in data importer, which showed us that they didn’t share our vision.

There are lots of ways to determine if you have good alignment with an investor. For Flatfile, we spoke to investors about data transactions between businesses and how more than 80% of enterprise data is still not API connected. Then we watched as their eyes lit up and they leaned into all the ways Flatfile could solve that particular problem. Bingo! We had alignment with them on our vision for the company and we found an investor with whom we wanted to partner.

We leveraged our product management experience during this stage, prioritizing investors based on the business case each one made for us. I created a simple weighted-average ranking model in Google Sheets, listing key investor attributes by how much each mattered to us. Some of the factors were geography, fund size, partner engagement, and brand recognition. Creating a logical, steadfast approach is an effective way to choose the right group of investors with whom you would be willing to move forward.

Interestingly enough, the pandemic masked a larger shift that has been happening in venture capital. Historically, VCs have been the source of (rare)capital, and startups had the labor to turn that investment capital into a return. In economic theory, capital usually wins out over labor in the long run. That has now flipped where the rare capital is actually the startups that are experiencing success. Those are the investments that are going to make an investor’s returns, and the labor is the money that’s coming to work for that startup.

Successful startups are currently the rare capital that is being pursued by the VCs. As a result, investors are trying to get to know businesses earlier and get involved quicker. They are realizing if they wait for the startup to come to them, the growing business might have already had conversations with a dozen other VCs. As a result, more fundraising is happening without due diligence, or with due diligence happening after the fact. That’s a huge benefit for startup founders who don’t have to spend as much time fundraising and can focus on building their business instead.

Before you initiate a fundraising campaign, spend the time to understand the general public market as well as the VC investment market.

Looking back it felt amazing that we were able to successfully close multiple rounds of financing in the middle of a pandemic. It proves that with adversity there can also be opportunity.

When it came to fundraising during the pandemic, the biggest difference we found was that the cycles were much tighter. Every conversation was more condensed than a typical fundraising conversation. The usual pre-meeting personal interactions or night-before dinners didn’t exist so we had to share much more information in a shorter period of time. We had to work more diligently to make our case, faster.

For companies looking to raise funding in a post-pandemic world, the turnaround times may be swift as there’s a lot less “let’s get to know each other” time. I would encourage you to get to know investors early, well ahead of when you desperately need funding for your scaling business.

Ultimately, fundraising is driven by how well your business has done and is doing. To that end, it’s critical to remain focused on your path to success, regardless of what your competition is doing. One of the most important things we learned is to avoid chasing the competition, especially as the market leader. We instead focus on being the best possible version of who we are – the Flatfile that customers really love for what we do.

We constantly use that approach to drive ourselves forward without regard to what the competition is doing.