Fundraising is a science, not an art. We raised a $5 million seed round for Eden several years back. I have worked with a number of founders since then, helping them get there, too. Here’s how you do it.
First, Learn How to Say What You Do Simply
Most founders struggle with concision. In Y Combinator, we learned the 2-sentence pitch:
1: What you do initially (eg, desk booking software for hybrid startups).
2: Your big vision / what you will be (eg, the leading hub for all HR needs).
Create a (Short) Deck
The deck should begin with your problem, then your solution, then your vision. Include a total addressable market (TAM) slide, team slide, and end with a revenue chart getting to a big number in < 5 years. If your deck is > 10 slides, make cuts.
Hone Your Deck
Practice presenting on folks who have raised or invested in a seed round. You can DM startup people on Twitter to help you – you’ll find folks willing to do so! Ask for honest feedback. Once content is final, find someone on Upwork to make it look better.
Consider a Range of How Much You Want to Raise, Choose the Low End
We were open to raising as little as $500K but as much as $5 million. Choose the low end of your range as "the target." Small lifts are easier and you can always decide to take more if oversubscribed.
Write Down List of Stage-Appropriate Investors and Rank Them
First tier includes your dream investors – those who know your category well and have great reputations. Those will be your last chats, once you have nailed your pitch.
Do Not Include Late Stage Funds in Your List
Make sure to only include seed-focused investors in your seed.
Why? Late stage funds, especially prestigious ones, create signaling risk for your next raise. For your Series A, everyone will ask “is Late Stage Fund X in?”
Start with VC Advice Chats, Not a Public Raise
Actively raising from a cold start is a bad idea. Unfortunately, some investors refuse to be the first money in – they require social proof for various reasons.
Once you are ⅔+ committed for the round, you’ll make it public.
Get Warm + Cold Intros
Starting with the lower fit VCs on your list, look for warm intros, scouring LinkedIn for mutual connections.
Shoot your shot with DMs on Twitter, LinkedIn, or emails if those don’t work. Work every angle and personalize your notes.
Truly Use the Chats for Advice
Your VC advice chats serve 3 purposes:
1) Learn how to improve your company
2) Learn how to improve your pitch
3) Create space for someone to express interest in a raise
Iterate on your pitch to A/B test their reactions for what resonates.
Once in Meetings, Wait for “The Spark”
There are a few types of investor reactions to advice chats:
1) "Best of luck" (Likely Eventual Pass)
2) "Follow up when ready to raise" (Maybe Eventually Interested)
3) "I'd love to be a part of this when you raise" (The Spark)
When You Get a Soft Commit, Ask For a Range
Ask your soft commit for the low and high end of what they would ideally invest.
Send the soft commits your deck to help close them.
Ask Soft Commitments for More Leads
Soft commit warm leads will convert at the highest rate.
We had two “super angels” who separately committed to our seed, and their 5+ referrals all ended up being a “yes”, too. People follow their more experienced, capable angel friends.
When Your Soft Commits Hit 2/3 of Target, Announce Your Fundraise
Once the sum of the high end of your soft commitments is > 2/3 of your target round size, make it official: you're raising!
Congrats, you have deal heat!
Schedule VC meetings and send the deck beforehand.
Run a Parallel Process
You'll want to try to make your time with a "public raise" as short and fast as possible. Try to schedule all first round meetings in same week or two and charge to a close within the month.
Once you have “The Spark”, faster raises create more deal heat, increasing the probability of a successful conclusion.
It is OK to be Oversubscribed
Once you get to 100% committed on your targeted amount, it is OK to finish out your scheduled VC chats if you have not yet landed your dream VCs or you want to make your total raise larger.
Just be respectful to all – these are your future partners.
Time to Close
As you get to 200% oversubscribed, 300% oversubscribed, you will eventually reach the point where you have the investors and the capital you want. Let's move to closing now.
As Steve Schwarzman says, time wounds all deals.
Choose the VCs Who Will Be the Best Partners
Choose how much you want to close, often at the high end of your initial range.
Don't be afraid to do founder reference calls. It is especially valuable to know how your partner treats her portfolio companies when times get tough.
Avoid Non-Market Deal Terms—They Never Go Away
Engage a legal team to structure the deal with "vanilla" terms, as bad seed terms are hard to remove in later rounds.
For a seed, using a YC Safe is a good idea.
Get signatures and collect $ within 2 weeks of finalizing allocations.
Good Luck on Raising Your Seed Round!
Hope this guide helps you unlock the capital you need to chase your dreams.