By Tian DuBelko
Raising a seed round of funding for your tech startup can be a challenge. At extraSlice, we’ve had the privilege of advising and connecting some of the top startups in the Bellevue, WA to some of the best VCs. And through years of experience, we’ve noticed that some questions are brought up by founders again and again.
To help your startup succeed at fundraising, we’ve put together a guide of best practices and tips on how to raise a seed round. Check out this list below, then visit our blog for all things tech in the Greater Seattle Area!
Fundraising does not happen overnight. It’s a process that could take anywhere between four weeks if you’re an experienced founder with an exit plan, to six months if you’re new to the industry. For most founders, fundraising is an ongoing process that is both time-consuming and emotionally draining. You will probably have to meet with lots of investors and sell them your pitch. And this is where having a cofounder comes in handy, as one of you can focus entirely on fundraising and the other can oversee the day-to-day operations.
This seems like an obvious tip, but many a times promising startups have been derailed because of poor runway management. Your “runway” is how long your startup has until it runs out of cash, assuming a fixed income and expenses. Investors will want to see that you have a plan, so you’ll need to confidently and credibly answer any of their financial questions.
The one thing that you want to avoid doing is raising money with too short a runway. Not only will you find yourself backed into a corner, but VCs will be lukewarm to commit to a sinking startup. If you’re struggling to break through to VCs, consider other funding options, such as grants and crowdsourcing.
It’s inevitable: many investors you meet will give you the cold shoulder. It’s not helpful to dwell on the negative feedback and take these rejections personally. Rather, ask investors why they turned you down. Maybe they weren’t sold on your company. Or many your pitch was simply too offbase. Getting feedback from VCs will help you improve your pitch and prepare for future meetings.
As the old adage goes, “It takes practice to make perfect.” The same idea is applicable to your VC pitch. Just because you understand your product inside and out doesn’t mean that investors will be as familiar with it. That’s why you should always be getting fresh eyes and ears on your pitch, to make sure that it’s crystal clear in order to avoid any confusion when meeting with VCs. It also goes without saying that you should have your pitch practiced and memorized before any meeting. Investors will notice if your pitch is well-practiced and presented with confidence.
Many first-time founders make the mistake of not getting clear answers from potential investors. Because they don’t want to scare off any VCs, first-time startups let themselves be strung along by speculative investors that aren’t ready to invest. Don’t be afraid to ask for a definitive answer if investors seem excited about your startup but noncommitted. Often times, these lower tier institutional or seed stage VCs are simply looking to follow a lead investor. They want proof that someone believes in your concept, and won’t fully commit until they see someone else put money into your company.
Many tech startups deal with highly technical products that are hard to describe with only words. If you have a physical product, it’s easy to bring it with you to the meeting. However, if your product is less easy to present, it can be helpful to bring a visual. And since most investors want to see a pitch deck anyway, you’ll want to make sure that yours is especially impressive. You might want to invest in a good designer, and/or even a copywriter, to effectively communicate the essence of your product.
When a startup is seen as a scalable business model, VCs tend to invest quickly. To make your company a viable long-term option for VCs, you’ll need to present them a detailed spreadsheet with your expenses and revenue for at least the next three years. Investors will want to see some proof that your startup can grow and generate revenue. If you can show a clear growth path based on your current revenue and other factors like marketing, VCs will be more comfortable investing large amounts in your company.
With five to 10 years being the standard expected return time on a startup investment, investors will want to see what you do with this seed round of funding before giving you more. Some common questions that you’ll need to answer include what milestones will you hit, what the milestones are for the next round, etc. In short, you need to know the financial projections and metrics of your company like the back of your hand.
You should be networking and looking to build relationships with investors even before you begin fundraising. It’s a lot easier to ask someone you know for capital than it is to pitch to strangers. Having established relationships makes it much easier to set up meetings and ask for referrals as well. Since VCs tend to be incredibly busy people, you’ll want to be careful as to not come off as too spammy and annoying. Respect their time, and they’ll respect your requests and calls.
No matter what your tech startup deals with, it’s important to find the right investors for your stage. If you’re an early stage startup, you might seek an investor that has experience with building and growing companies similar to yours. It doesn’t hurt to do a little homework and check out their portfolio. You’ll want to team up with investors that understand your industry and your vision, and sometimes you’ll have the opportunity of teaming up with another company in their portfolio.
With the right investors, you’ll have access to their network of connections and referrals. Perhaps more importantly, they can help you set appropriate expectations and help you with issues that you might be struggling with.
VCs are busy, busy people. And if you try to get their attention with a cold call of cold email, you will likely be ignored. The best way to meet investors and make new connections is through referrals, so try to get an introduction from a CEO or founder that they trust. Most of the time, this CEO or founder has worked with the investor in the past, and you can pick their brains on what it’s like working with them.
Even in the field of venture capitalists, people still prefer face-to-face interaction. It’s still a relationship-driven world in the business community, so you should always be networking and be on the outlook for potential investors.
First-time startups often struggle with convincing investors that they’re a worthy investment. Especially during the early stages, investors are looking to invest in you as a founder and in your founding team. You can ease a lot of investors’ concerns by bringing on a quality cast of board members, advisors, and angels. And if you can demonstrate that your startup has the leadership to handle challenges and make tough decisions, your startup will be that much more attractive to potential VCs.
Choosing the right shared tech office space can jumpstart your tech business and accelerate your company’s growth. In the right ecosystem, you’ll have an easier time hiring top talent, expanding your network, and even securing the next round of funding.
Think your Seattle tech company might be a good fit for ExtraSlice’s community of trendsetters and innovators? Then book a tour of our tech campus or visit our website to learn more about The Place for Tech!
Excellent article