Money20/20: How your series A&B fundraising decisions can affect your exit

Businesses need to know their endgame to make strategic decisions

Which is better, organic or funded growth? While both have their advantages, funding can accelerate the process, if it’s deployed correctly.

In the Money20/20 Europe session, How Your Series A&B Fundraising Decisions Can Impact Your Exit, Damian Woodward talked through a fintech business lifecycle, valuation and strategic fundraising.

Woodward is principal and co-founder of Bean Partners, which guides chief executive officers of tech companies as they fund, scale and sell their businesses.

This helps them to raise money before it’s an emergency, deploy capital to maximise runway, and maximise their valuation and exit outcome.

The typical pattern of startup fundraising is an emergency raise. This isn’t a sustainable journey and can significantly affect the valuation and attractiveness of a business at exit.

In fact, 80% of businesses that enter a sale process fail to sell, according to Forbes.

Founders in this pattern of fundraising complain about being stuck in investor meetings when they need to be raising money, instead of doing what they do best—building their businesses.

Woodward said: “If you can understand your business lifecycle and the value of your business, you can make strategic decisions.”

A lifecycle includes starting the business and building a team, then developing and growing its product in the angel investment phase. Series A is all about gaining traction until series B, when a founder can asset build, continue to grow and exit. 

Woodward emphasised that founders “need to know their endgame to make a strategic decision plan”.

For example, a founder who wants to exit in five years with £50m will have different ambitions and goals to those that want to achieve unicorn status in eight years.

Knowing where your capital will be spent and deploying it as efficiently as possible is crucial. Woodward said: “A lot of money is spent on people, and they need to deliver what they need to deliver to achieve an uplift.”

Fintech funding has gone down in the last year, early stage VC is decreasing, and mergers and acquisitions are increasing.

This means it is not easy as it once was to fundraise, but investors are still willing to invest in promising fintechs.

Woodward said: “There is a need for funding as you develop your product.” But he warned: “You may need more capital than you think.”

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Image: Jirsak via Canva

Mark Dugdale