When a startup reaches the point where it needs external funding to build and grow, many companies will seek a “Series Seed” round of venture capital or angel financing. This term has been applied to a range of different funding structures over the years; most recently, however, Series Seed has been used to describe an initial round of funding that does not exceed $2M. After going through this process ourselves recently, we learned five valuable lessons worth sharing about raising a successful seed round:
1. Be prepared
Know your stuff – cold. Too many startups believe that living and breathing their business everyday will sufficiently prepare them for an investor meeting – they’re wrong. Good investors (venture capitalists, angel investors, etc.) have ways to rapidly get to the heart of the matter. They ask extremely detailed (and unexpected) questions that help them understand your business, the market opportunity, and your team. Take time to think through what these questions might be, and practice with your team, or other people who have been through a successful seed round process before. Prepare to be grilled on every piece of information you’ve shared. Make sure you know your material cold (product/market details, PnL projections, etc.). Most importantly, treat every meeting as a learning opportunity to better prepare for the next one.
2. Control your message - and your meeting
No matter how well you prepare for a pitch, potential investors will almost always pull you off your agenda. Sometimes it’s just a non-linear thought process, or a desire to focus in specific areas; sometimes it’s a tactic to see if the startup’s team is capable of controlling a meeting and delivering against an agenda. In any case, it’s critical that you quickly wrestle control of the meeting, get on-message, and stay there. If you don’t, you may never have the opportunity to present your real value proposition in the way it was designed to be delivered.
3. Follow up
The fundraising process is seemingly fickle at times. In the beginning, you expend a ton of time and energy engaging potential investors, preparing, and pitching. The activity comes in flurries – sometimes it feels like days (years) have gone by without any activity, and then, suddenly, everything heats up at once. This is when you need to capitalize – be hyper-responsive to investor info requests, follow up calls, etc. Always send a thank you email to follow up within 24 hours of a pitch. You’ll learn very quickly that, when things begin to heat up, you need to turn the heat up on your side as well. If you don’t, things cool off just as fast. Successfully securing seed round funding is much like any other sales process – the length of the cycle is often inversely proportional to the likelihood of the deal getting done. Stay on top of the process and you’ll have a much better result.
4. Pitch widely, but partner wisely
Conventional wisdom suggests that you pitch your startup to anyone who will listen. Pitching widely is certainly a great practice; you expand your network, and oftentimes you stumble upon a great idea or investor unexpectedly. But, after all the pitching, choose your investors VERY wisely. Remember, there are lots of people and firms who can write (large) checks, but the ability to fund is just the start of the discussion. Choose partners who can add genuine value to your business, through direct experience in your industry, a network of prospects and resources, etc. And, be sure there’s a good personality and culture fit – you’re going to be spending a LOT of time with your investors going forward.
5. Draft a term sheet
A term sheet outlines the basic terms and conditions of the investment agreement. Most startups (including our own) don’t believe that they can “write their own terms”. In fact, we were surprised when our first committed investor asked us to send him a draft term sheet. What a great opportunity! At the seed stage, investors appreciate startups taking the initiative to put the term sheet together. Speak to other startups who have gone through the fundraising process recently to determine current industry standards – and work to put together terms that are fair and equitable for all parties. Draw up the term sheet to be “down the middle of the fairway” for everyone –this will greatly reduce the negotiation timeline and leave everyone feeling good about the final terms.
One final tip: dress the part when meeting with potential investors. I know many of us do startups so that we can ditch the suits and work on our own terms. That said, fundraising is basically asking virtual strangers to write large checks to build and grow your business – look like someone you’d give a large check to.
Chris Aronis is Vice President of Sales and Marketing at BISON Alternatives. Prior to joining BISON, Chris held several senior executive roles at SunGard. Most recently, he served as Chief Operating Officer of the SunGard Global Network (SGN) for Securities, a worldwide equities and derivatives trading network with 2500+ institutional participants. Chris also headed sales for SunGard broker-dealers, and held various executive sales and general management roles for the Protegent compliance software business unit.