If you are raising a seed you are probably thinking of many questions along the lines of “Do I have just a deck or a full-fledged product?”, “Is having a great co-founders good enough or do I need a whole team” and “If I show a detailed plan will the investor appreciate it or laugh at me that things will go as expected?”
The advice you may be hearing is confusing, perhaps contradictory, and most often summarized as “it depends.” This post will try to clarify three key principles to help guide you in your journey, about the investor, about the team and about proof points.
1) Investor — Getting the first investor is the hardest. If that is your lead investor then it will be even harder.
I believe over half of the effort of raising a seed round is getting the first investor on board. Common strategies include:
- Getting to know your potential investors first before pitching them formally. This may not be an option for everyone but if it’s for you, ask them to first give feedback on your idea so you can hone it further and be at the right place for them to be interested. This creates a multidimensional, long-term dialogue rather than a yes-no conversation around funding.
- Doing your homework around the target investor, especially their previous investments and philosophy of investment. In this day and age where you can network and search so easily, there really isn’t an excuse to not looking someone up on LinkedIn or Angelist, and perhaps reaching out informally to other investors and entrepreneurs for insights.
- Reaching out first to second priority investors, where you can hone your pitch and perhaps get them on the round conditionally upon getting other investors.
- Warmer introductions do matter, especially if you are an unknown entity since you are leveraging someone else’s social and political capital. Make it a two-way street, do something nice for the person introducing you, even if it’s just a good word with other parties.
2) Team — Serial entrepreneurs do have it easier (unless you have screwed up big time repeatedly). If you are a first-timer, go the extra mile in building a great team.
The data shows that past startup success is not a predictor of future startup success but the data also shows that repeat entrepreneurs are much more likely to get funded. How to reconcile these two seemingly incongruent trends?
Consider that unsurprisingly a lot of serial founders go back to investors who have backed them previously, building from an existing relationship of trust. Consider also that if you have demonstrated an appetite for risk and executed well enough, you build a reputation that translates to new investors also. And finally, consider the generally held belief (to which I very much subscribe too) that a serial entrepreneur who built a good but not a great company and decides to do another startup is perhaps the hungriest kind of entrepreneur.
At the seed stage, when the proof points are minimal, the team matters disproportionately. A good investor looks for the backgrounds of the team, especially cofounders, as signals of how capable the team is. A great investor will go beyond and look at if and how the team has worked together in the past as an indicator of they might work in the future. The data does show the best companies are created by groups of people who have a strong foundation already, typically from having worked together previously.
3) Proof Points — They matter. As simple as that.
This may be common wisdom but I believe a good reminder always:
- If you are not full time already then you need to have a very good story for it. Why would someone invest their money into your startup if you are not willing to spend time on it?
- A prototype is worth a thousand slides. A product is worth a thousand prototypes. In general, the expectations on an enterprise company are stricter here given that consumer companies play a deferred / higher stakes game in getting product-market fit.
- A plan doesn’t need to be perfect. But there should be one as the very fact of having a plan will give you the rigor you need. A good investor won’t ask you for revenue scalability in your seed, but you should understand when and how that comes into play.
- If you have heard stories of people who raised based on a mere idea and — seemingly apocryphal pieces of napkin — they may be true but most definitely overrepresented in the popular imagination.
- The vast majority of founders come to a seed investor meeting with a 10–12 slide deck and a prototype for the demo. If you have more proof points but they don’t help your case meaningfully then you can always put them in the Appendix and highlight pending how the conversation goes.
- The vast majority of early-stage investors get flooded with pitches and appreciate brevity.