Thinking of raising a seed round for your startup? Here’s what you need to know…
The seed round is a critical stage for raising capital to fund and advance an early stage startup. It may be your most important round.
So, when should you start raising it? What do you need in order to secure the financing you want? How do you get the investors on board?
Let’s take a look at what entrepreneurs need to know about this stage of funding for their startups, and how to excel at it…
The Ultimate Guide To Pitch Decks
Here is the content that we will cover in this post. Let’s get started.
- 1. Fundraising Rounds For Startup Entrepreneurs
- 2. What Is A Seed Round?
- 3. Types Of Seed Stage Investors
- 4. What Fundraising Materials Do You Need For A Seed Round?
- 5. What Matters Most When It Comes To Securing Your Seed Round
- 6. Where & How To Find Seed Stage Investors
- 7. Acceptable Use Of Funds From A Seed Round
- 8. When To Start Raising Your Seed Round
- 9. Important Considerations When Raising A Seed Round
Fundraising Rounds For Startup Entrepreneurs
‘Getting funded’ isn’t just a one time thing for startup businesses. Funding for startups happens in stages. Also known as ‘rounds’, or ‘series’.
Capital is a constant need for most startups. Once you start raising it is typically a nonstop process through until you exit the company.
This is the typical flow of fundraising for startups.
This is the earliest stage of financing for a startup company. Often involving self-funding or close personal contacts. It is basic funding to start working on something. Not all startups will raise a pre-seed, though it can be helpful.
The seed round is what we will be focusing on specifically in this report. This is the first real amount of outside capital being brought in. A foundational step for everything else.
Series A Round
By this stage a company should be well on its way to building a successful business. The basic fundamentals of the business will be established. Additional funds at this stage via a Series A round can help polish and fine tune the economics, and fuel expansion.
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Series B Round
By now the company is doing well. Unit economics and business models are working. Product market fit is there. New capital can aid in infrastructure and marketing to grow even more.
Series C & Beyond
The number of rounds that startups have been raising as private companies seems to keep on expanding through the alphabet. Now a Series C, D and even E are not uncommon. This is about scaling. It may also fund geographic expansion, finance the acquisition of other startups, and help position the target company to be acquired or go public.
What Is A Seed Round?
A seed round is the first meaningful external capital that a startup will bring onboard.
At this stage the company is typically still in a very early and rough state. The product may not be finished. Product market fit probably hasn’t been established yet. There may be critical parts of infrastructure or more testing and iterating to do to really get things flowing and to enable autonomy.
This phase is about proving and perfecting the basics before being ready to hit the gas.
How much capital is required in this round can vary widely depending on whether there are real, essential and tangible investments required for hardware, lengthy scientific testing, or when sales cycles can be a year or more long.
Keep in mind that in fundraising, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Types Of Seed Stage Investors
Where does seed stage money come from for startups?
Friends & Family
While these close personal contacts are more likely to participate in the pre-seed stage, those with substantial sums to invest may also participate in a seed round. Especially if they are serious investors.
Startup accelerators may provide five or six figures in funding for early stage ventures at this point. Along with learning resources, and a process for making progress, these programs typically culminate in another fundraising attempt within a few months, from a broader range of better funded investors.
Although seed rounds have been getting larger, this has still typically been the domain of angel investors and angel groups. Individuals and collectives that at least professionally engage in this type of investment part time. This can range from high income earning professionals to celebrity investors.
There are several ways to leverage various forms of crowdfunding at this stage of the journey. This can be well known public crowdfunding platforms to help get product development funded, while creating some buzz, securing early customers, and gaining more feedback and proof of concept. Or entrepreneurs can turn to more boutique crowdfunding options to appeal to more sophisticated and accredited investors interested in debt or equity crowdfunding.
Grants & Competitions
This is an attractive form of non-dilutive financing for those with the time to detour through various competitions or grant application processes. In addition to the cash, these opportunities may also help a lot with establishing credibility, boosting your resume, and enhancing your future pitch decks.
Many hyper successful, fast growth startups have found some of their best funding comes right from new and future customers. Those that want what you are developing can be involved in funding it, and perhaps even helping you curate the best product for these customers. It’s really a two for one opportunity.
Venture capital firms have been participating in earlier and earlier rounds of funding. Securing some big names, with the ability to participate in follow up rounds now can have big advantages as you continue to grow your venture.
In the video below I go into detail as to how to raise a seed round.
What Fundraising Materials Do You Need For A Seed Round?
What do you need to get investors interested in your startup, and writing those checks?
A strong pitch deck is going to be one of the most important tools you have to get in front of investors, and grab their interest.
At this stage, entrepreneurs should be focusing on very simple pitch decks. Averaging around 10 slides in length.
A Great Pitch
You’ll need a great verbal pitch as well. You should have several lengths of verbal pitches well memorized. You should be ready for all situations, from elevator pitches when bumping into potential investors, to presenting your deck live, and during investor meetings.
Begin creating regular investor updates. These can go out to prospective and current investors, and be additional fundraising collateral to accompany your decks. They can be one of the most powerful tools for building trust and credibility with investors, as you prove you continue to do what you said you would in your previous updates.
Be sure your virtual data room is set up, organized and loaded with all of these materials in order to keep the momentum going when you do get investors interested.
At least a one page business plan, along with a strong marketing and sales plan, and brief action plan with several bullet points that you are focusing on will make your data room even richer and demonstrate how well you’ve thought this through, and what you’ve invested in it already.
What Matters Most When It Comes To Securing Your Seed Round
What is most important to investors who invest in seed stage startups?
The strength of the team is by far the most important element when it comes to closing investors and capital at this stage. Everything else may well change in the weeks and months ahead. They want to know that they are betting on the right horse and jockeys in this race. They need entrepreneurs who have the tenacity to stick it out through all of the upcoming challenges.
Second to the team is not the solution or product, it is the problem you are setting out to tackle.
Is it a very big and urgent problem? Are people willing to pay to solve it? Can it be profitable?
How much work have you done to prove this problem exists, gain clarity on it, and identify what is really most important?
Along with this, your ability to share a compelling vision for the future is going to be instrumental in closing the money.
Where & How To Find Seed Stage Investors
Now that you are ready to start pitching investors, where do you find them?
You can reach out to your personal network, cold contact famous investors, and show up where you know that they will be.
It can be even more powerful if you gain targeted, warm introductions to investors through other intermediaries. Such as through your fundraising advisors.
Acceptable Use Of Funds From A Seed Round
The most common uses of funds from a Seed Round include the following:
Hiring: Investing in key talent, and building the best team in the business
Marketing: You don’t have a real business, and certainly not a proven idea or sustainable one without sales.
Product Development: If you truly need capital to build and finish your product, this is the time to do it.
When To Start Raising Your Seed Round
Obviously you want to be well prepared with your pitch deck, pitch, and understanding the startup fundraising process.
However, it can take months and years to build the human relationships and trust to land funding from the ideal investors and partners. This means that you should really be networking, positioning yourself and your company, and be subliminally raising long before you are ready to take in the money.
Once you bank this first round of funding for your startup you will be consumed with living up to your promises to investors, while actively raising for all of the following rounds.
Important Considerations When Raising A Seed Round
These are some of the other important considerations to keep in mind when thinking about raising startup capital and strategizing your seed round.
Securing The Right Investors
Bringing in the right investors for your startup will make all the difference.
This is a long term relationship. They are people and organizations that you will be working with every day. Possibly for the next 10 years or more. They may have a lot of control over your business, product, and customer decisions.
If these aren’t the type of people you’d eagerly want on board as business partners, even if they weren’t bringing money to the table, they may not be the right fit for you.
Other Value They Bring To The Table
There are lots of places to find money, and in many forms. One of the big differentiators in the investors you allow into your business, and when comparing them should be what value they can bring besides the money.
This may include the connections they can bring for distribution and further capital, as well as their business expertise, and other resources which may help with efficient development and business growth.
How It Will Set You Up For The Next Round
How will this round of capital, and these investors prepare you for your next round.
Will it be enough money, on good enough terms to get you through to a stage that will justify more capital from larger and more sophisticated investors?
How will having these investors onboard influence the ability to raise money from the investors you want and need next? Do they know them? Have they worked well together in the past? Or might they and the size stake they have taken be detrimental to bringing your next ideal investors in?
Setting The Right Milestones
The main aim of your seed round is to get enough capital and resources to achieve the notable milestones that will qualify your business for a Series A round.
Be sure that you are setting reasonable milestones with these investors that you can actually achieve. Or they aren’t going to participate further, and won’t be able to give you great recommendations.
At the same time, be sure those milestones are big and strong enough to warrant another, bigger round of capital to carry you through to a Series B round.
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