This week on the startup to scaleup journey:
What we have learnt from serial founders
A fascinating aspect of our work at Duet is the opportunity to observe founder behaviour. One of our recent studies compared the ‘state of investment readiness’ of first-time founders to serial founders, as they prepared for funding rounds. Perhaps unsurprisingly, given their additional experience, serial founders consistently scored higher. But the real insights came from discovering WHY they scored more highly. We were able to draw upon our rich client dataset, having advised 60 founders over the past 14 years, across a range of funding stages from pre-Seed to Series B. Almost two thirds of this portfolio have been first-time founders, the balance being made up of serial founders with one or more startups already behind them. For the study, we used a particular database of findings from one of our core services, 'Investment Analysis'. This is an investment preparation project that examines, amongst other things, the calibre of the investment proposition. One of the main outputs is a scorecard, very similar to what VC funds use in Investment Committee meetings when making their final investment decision. This grades 12 critical elements of the investment proposition. This was the first time we had undertaken a comparative analysis of these historic scorecard results.
In our study, undertaken to inform the development of a new founder/CEO coaching service (see more on this below), serial founders consistently delivered higher ranking scorecards during Investment Analysis. They were in a more advanced state of readiness for each funding round. We were keen to discover if serial founders possessed common attributes that gave them this edge. If so, could this potentially help first-time founders looking for a leg-up as they navigate the same journey? By undertaking a qualitative review of dozens of Investment Analysis scorecards, we discovered 3 areas where serial founders seem to most effectively leverage their experience throughout each fundraising cycle: The first was; 'CLEAR VISION'. Serial founders possess a strong vision of the economic outcome they are seeking, both for the company and themselves personally. For example, they often have a figure in their head for what economic success will look like. First-time founders rarely have this degree of economic focus. In addition, serial founders operate with a much clearer mental roadmap of the major milestones that will get them there. This is less of a voyage of discovery, more a mission to get to a specific destination. Finally, they know what to narrow in on to achieve the outcomes they are striving for, and what to ignore. They are generally imbued with a clearer understanding of not just what to do, but what NOT to do in the pursuit of enterprise value creation.
The second area of leverage was; 'VALUE CREATION'. Serial founders focus relentlessly on how the business model will maximise enterprise value creation, not just how it will delight customers. They are more decisive when the big moments come and trust their gut as much as the data. They align the business model with the major milestones of value creation to create irresistible funding propositions at intervals along the way. Crucially, they understand where startups can unwittingly destroy value and even make themselves unfundable. The third area of leverage was; 'INVESTOR RELATIONSHIPS'. Here, they demonstrate a deeper understanding of what investors really care about, the shape of deals they seek, and how this varies by investor type, industry, and market conditions. They are more cognisant of how these relationships play out over time, especially when things don't go according to plan. As a result, they are more savvy in managing these relationships, especially in the context of the board and the rights they are willing to give to investors at each round. In sum, serial founders arrive at each funding preparation step at a more advanced stage of readiness than their first-timer peers. This speeds up the entire funding process. In other words, they use their experience to buy time. They leverage this time to focus on their primary mission: growing enterprise value. The reason more than 80% of startups fail is not because they run out of money, but because they run out of time.
'Founder to Funder' - expert coaching for first-time founders
In our ‘state of investment readiness study’ described above, we found that first-time founders often begin investment preparation at a less advanced stage of readiness than their serial founder peers. As a result, first-time founders take longer to resolve shortcomings identified during Investment Analysis. There is just more to do. This can delay the campaign start, sometimes by months. If the cash runway then gets squeezed, this can put the company in peril - or at the very least put it at the mercy of current investors. In addition, we notice that post investment, first-time founder/investor relationships often tend to progress with greater uncertainty. There might appear to be a close alignment of interests at the outset but when problems start to occur (which they always do) and the value creation plan falters, these interests can quickly diverge. Relationships become strained, the Board starts to resemble a bear pit, and the founder starts to lose control. These insights have enabled us to think differently about how we support first-time founders. To boost their all-round capability as a startup fundraiser we have introduced a new coaching program: 'Founder to Funder'.
Founder to Funder is specifically designed to accelerate the effectiveness of first-time founder/CEOs as they move through the early phases of the capital-raising journey. It is centred around 3 core topics, based on the key attributes of experienced, serial founders: 1. Clear Vision: How to develop a strong vision of the economic outcome and a mental roadmap of the key milestones to get there. 2. Value Creation: How to develop the business model for enterprise value creation and funding-round alignment. 3. Investor Relationships: How to better understand the investor mindset and the management of investor expectations. By focusing on these 3 topics our aim is to enable first-time founders to: 1. Be just as savvy in the art of capital raising and investor management as their serial founder counterparts. 2. Be at a more advanced stage of readiness when starting the preparation work for early funding rounds (pre Seed, Seed, Series A). This will help accelerate investment preparation and enable them to move swiftly into the funding campaign with a higher degree of confidence that they will attract investment, and 3. Be more effective at managing the board and key investor relationships through each milestone on the startup to scaleup journey, by better understanding the investor mindset.
Founder to Funder distils the best habits of serial founders into a framework based on the 3 key attributes. We have bottled years of experience and know-how so this framework provides a solid structure for both learning and application. Each coaching project is customised around one or more of these core topics depending on individual needs and the investment stage (pre Seed, Seed, Series A). Through 1:1 coaching, we help founders develop an approach for their own unique circumstances and provide an experienced sounding board as they apply this framework in their own startup. The Founder to Funder program incorporates regular online coaching sessions (typically on a weekly basis) plus add-hoc support on any matters arising. Coaching engagements run for an initial period of 3 months, after which they can be extended for as long as required. Founder to Funder enables first-time founders to accelerate their effectiveness across critical aspects of the capital-raising journey, a core capability for founder/CEOs. Like all our other offerings, Founder to Funder is available as a standalone service, but when followed by Investment Analysis and the Guided Fundraise for each funding cycle, it is one of the most powerful support packages available to first-time founders. Read more in our latest blog post here.