I’ve noticed a trend in Southeast Asia: As soon as the founders sign the term sheet with their investors, they run off to the media, eager to announce their funding news to the world. Their excitement is not without reason: with a simple press release about their raise, their startup can get front and centre with millions of tech readers, including potential customers, employees, partners, co-founders, and even future investors.
In the age of TechCrunch and VentureBeat, successful fundraising is as much about communications as it is about capital: it can legitimize you – fairly or not – with key stakeholders in your startup and tech ecosystem. Announce a large enough deal in a niche vertical of tech and you can even dissuade investors from backing current or future competitors. In the tech world – perhaps more than anywhere else – money talks.
Fundraising, like every strategic decision in a startup, beginning from what you call your company and who you hire all the way down to where you chose to locate your office, has to have an element of external communications.
In this era where every business move is a potential signal, I would like to advise founders in Southeast Asia to think about their venture capital-related comms more strategically, as I myself had to learn. Late last month, we finally announced our first fundraising for our Manila-based, HR-tech company, Sprout Solutions.
Over the course of a few hours on an April afternoon, publication after publication shared that we had raised a “US$1.6 million in seed funding” or a “US$1.6 million seed round,” but the particulars of this announcement were months in the making. Most would assume that we went back and forth on sharing the amount we raised, as many startups are increasingly opting for a poker-style, close-to-the-vest “undisclosed” when pressed for numbers.
In our case, however, we were undecided on what to even call the round. Since there are no official guidelines for what constitutes a seed round versus a Series A, we could have fairly called it one or the other.
The relative fluidity between round categories made me realize that we at Sprout – and indeed other founders in Southeast Asia – need to view funding news much more strategically. To tackle this problem, I assembled Sprout co-founder Alex Gentry, our head of digital marketing (and social media guru) Nix Eniego, and marketing communications executive Lisanne Tumang. We agreed that the implications were significant either way.
If we called our US$1.6 million fundraise a “seed round”, we would typecast Sprout with the average seed stage venture in Southeast Asia. This average venture would likely still be figuring out product-market fit, have a handful of customers and some revenue, and look to scale only much further down the line.
Against this profile, Sprout was a round peg in a square hole: We had more than 200 paying clients, including some from the Fortune 100, had achieved profitability, and were optimizing processes to scale in the enterprise market in the short-term.
Sprout did not fit perfectly into the “Series A” profile either. The average Series A venture in Southeast Asia would have a product-market fit and a substantial amount of clients, significant revenue, and be in the process of scaling. While Sprout checked off all those boxes, the US$1.6 million would put us on the lower end of a Series A’s in the region. And if this is our Series A, it would exert enormous pressure on our next round, a Series B.
After careful consideration and a few discussions with our mentors, our investors, and our team members, we ultimately decided on calling it a seed round on the strength of a simple reason: It was better to be an ahead-of-the-curve seed-stage startup than an undersized Series A company. With the former, you were positioning yourself to lead, while with the latter, you were forcing yourself to recover ground.
Were we over-thinking the semantics of our fundraise? Sometimes even we felt that way, up until a week after local and regional outlets covered our “seed round.” As the coverage died down, inquiries from both HR heads and managing directors picked up. Most had legacy Enterprise Resource Planning (ERP) products from international companies, but they were eager to see how our newly-launched solutions – Sprout Insight and Sprout Recruit – could leverage artificial intelligence and predictive analytics to solve their attrition and recruitment issues.
One particularly enthusiastic HR manager even asked us who is at risk from leaving his company, referring to Insight’s stated ability to predict employees who may resign in the next three months through a combination of different metrics, such as demographics, compensation and attendance patterns.
When we asked them why they felt comfortable approaching us with their HR concerns, nearly all mentioned both our track record and our potential: we had not only achieved substantial traction as a startup but were also poised to innovate in our space even further.
Clearly, then, our focus on our fundraising terminology paid off, and I think the same will apply to other founders in Southeast Asia. Your fundraising news is – at its heart – a story, and you need to think about how each element will impact your audience of potential customers, users, partners, investors, and everyone in between. In other words, while money may indeed talk, you really need to do your due diligence on what you want it to say.
The article originally appeared on e27.