When Is Your Startup’s Christmas?

It’s four days before Christmas, and my last term sheet of the year is out. Year after year, December proves to be one of the busiest months in the life of an early stage investor as existing and potential portfolio companies scramble to get deals done before the new year. Like the holiday shopping spree from Thanksgiving through December 24th, VCs and startups alike may experience a natural boom at certain times in the year. And while early founders consider a VC’s seasonality, they may not be accounting for (and harnessing) their own “Christmases” when plotting their Series Seed to Series A journeys.

Everything has a season, even if that seasonality is tempered by a large, growing market. Just as understanding the seasonality of the venture ecosystem and avoiding long pauses during the winter holiday and summer vacations will make your fundraise more efficient, understanding your business’ seasonality will help you optimize when to raise, when to build, and when to execute throughout the year. If you can map out your seasonality in advance, you help yourself get what you want when you need it. If you do it right, you might even raise more money at a better valuation and keep a fair amount of stress at bay.

The fundraising advice I give seed stage companies is to think about raising 18 to 24 months of runway to clear Series A hurdles. I start by thinking about how much seed runway a company is needs to launch and ramp its product to achieve Series A proof points. As a rule of thumb, this is the time it takes to launch (if you are prelaunch) and accumulate roughly a year’s worth of data to reach a target revenue or user number that suggests product-market fit and a readiness to scale. Next, I advise seed stage companies to plan for three months to raise a Series A on the back of that data, and I tack on a three month buffer. (Think you won’t need that? Think again. While 36% of founders interviewed in First Round Capital’s state of startups reported raised their most recent round in one month or less, 59% took three months or more to get it done.)

And if the business has seasonality, well, I want to know, when their hyper-growth “Christmas” is and how many “Christmases” they get before they are down to six months of runway. Here’s how I think about this…

The obvious example here is online retail — after all, the stereotypical e-commerce company’s “Christmas” is the Black Friday through Christmas sales period that can bring in 50–100% more revenue than any other shopping days during the year. But if you are in the online flower business, 57% of your holiday transaction volume and 60% of your holiday dollar volume come between February and May with Valentine’s Day, Passover/Easter, and Mother’s Day. Which means if you are looking to capture investor interest by leveraging your peak sales performance, the natural time to raise in one of these businesses is coming out a strong December through May, as there is going to be a natural trough in sales in the summer and early fall and you can focus on execution during you craziest sales months.

While great startups continue to grow in non-peak seasons, fundraising after a natural seasonal bump in sales allows the companies lead with a strong story. If investors sit on the sidelines after your busiest season, chances are they’ll want to see how that season goes next year.

If I’m running a flower delivery business, I’m targeting hitting the ground running in May after a strong six months of data and I’ve got enough buffer in case I don’t get things wrapped up before VCs start disappearing for their summer holidays in July.

Seasonality also plays a large role in the K-12 EdTech market, and great companies consider its impact on their product and financing strategies. As an example, consider my portfolio company ClassDojo. While ClassDojo grows throughout the school year, they have especially intense ‘hyper-growth’ seasons at back-to-school time, in August-September and January-February (in the US). ClassDojo uses the school semesters to develop their products, building up to robust products and new product launches through their peak seasons.

I first met the ClassDojo team in the Fall of 2011. Their recently launched app was heating up in early adopter classrooms across the country. We closed a seed round that Fall, ensuring the team had capital to put against product enhancements leading into January, when teachers return to the classroom after winter break. This also gave them time to learn from and iterate on these enhancements so the product was even stronger and stickier come the next Fall.

Following exceptional growth in their next August-September back-to-school season, the ClassDojo team eliminated the distraction of a fundraise by quickly and quietly getting a round done in October-November, allowing them to line up resources and again focus their efforts on building products during the school semesters that would again enhance their next hyper-growth periods in January-February, and again in August-September.

Each year, ClassDojo builds up to a big launch for the following school year. They are able to test new products and features in non-US markets during the early summer months when US students and teachers are out of the classroom. They also take time to nurture teachers as community leaders when these teachers have some downtime over the summer months — everything from blog content, to professional development sessions, and events.

If back-to-school season is my Christmas, I want to ramp up resources immediately after so I can have as much time as possible to build product and community going into the next hyper-growth phase.

Focused on B2B? Understanding your customer’s seasonality and executing accordingly pays dividends. Government agencies are notorious for their “use it or lose it” year end splurges. They spend an average of 4.9x more in the last week of the fiscal year than any other typical week.

Whether customers are willing to pay upfront instead of monthly for your SaaS product or replenish their bank of credits before their annual bank runs out, knowing your client’s fiscal calendar year-end can be fortuitous for your bookings and your business.

If I’m leading B2B sales and selling into a organization with a lapsing budget, I want my sales reps to be identifying these opportunities far enough out engage and advance these prospects through our sales cycle.

This holiday season, get what you want and need for your company. Evaluate the runway you need to exit your next peak season in a position of strength. Align your next fundraise, product roadmap, and hiring plan to seize the opportunity presented in your hyper-growth season. Your startup’s “Christmas” could be Mother’s Day, final exams, healthcare open enrollment, tax season, or that last minute shipping window before December 25th… start by embracing the natural cycles in your market and watch the gifts appear.