Raising funds at seed stage will either make or break a startup business!
Being part of a startup venture, there are a hundred different things that you will have to go through. From identifying the right problem to developing the right solution, and finding the marketing strategy, everything will be on you.
However, one of the most important and challenging things about startups is to convince the right investors and consequently raising the required amount of money, especially at seed stage.
What Is a seed round?
Founders often love to spend their energy on a fitting business model, building an MVP, and generating some early traction for their business.
Until then, the primary source of funding comes from the founders themselves (aka bootstrapping). Moreover, family and friends might also pitch in money to get a startup going.
However, let’s get this straight. Family and friends don’t offer a helping hand because they have diligently vetted the startup idea but only because of their fond relationship with the founding team.
The next step (and real test) is raising capital in a seed round. This is a crucial step behind any startup’s success as it can either make or break your venture. This is also the first real interaction between the founders’ idea and the world of professional, or at least semiprofessional, investors.
The founder(s) have to present their idea to a wide array of potential investors, also known as business angels, to convince them to believe in the validity of their idea and support it financially and with their respective network.
How to Emerge Successfully from a Seed Round?
Everybody will tell you: “You need a killer pitch!”. At 21C, we believe a pitch deck is simply a document that needs to be put together diligently to present the relevant aspects of the business. Don’t spend more time working on your pitch deck and at startup events and pitching while neglecting your venture.
Don’t go overboard with animations and lurid quotes. Just make sure that you:
- Perfectly present the facts
- Carefully illustrate the problem that you are solving
- Present the solution
- Offer your insights into the market research analysis (TAM)
- Tell the investors why your team is the right one to deliver that solution
If this is your first time as a founder, you need to create a compelling pitch deck and present it to different audiences, maybe friends or family, and then gradually take it to a more experienced audience.
For the first feedback’s, select people with the ability to give hard but real feedback over people who want to be nice to you. These will be the people who help you to polish the case further and will help you identify blind spots in the story-line.
Once you start pitching, it makes sense to pitch your idea to your favorite investors after you already had a couple of iterations with not so relevant investors (guinea pig approach). Test it out, clear out the irrelevant and unattractive parts, and finalize on a powerful pitch deck. As with many other moments in life, the more you practice, the better you will get at it.
You can also present this idea to platforms that will offer valuable feedback, such as:
- Business Meetups (e.g., Meetup.com)
- Mingling with Accelerator Programs (e.g., F10.com)
- Business Angel Networks (e.g., https://www.sictic.ch)
It would be completely alright if you fail the first few times. The key here is to keep filtering out the points that simply don’t come across and start developing a sense for possible questions. Here are some recommendations to enhance the overall quality of your pitch deck:
- Put down some important FAQs at the end.
- Use graphs.
- Allow audiences to understand everything before moving onto the next slide.
- Use small sentences.
- Use clear-cut and to-the-point information, stats and values.
- Offer a unique value proposition.
- Give them the answer to “WHY You?”
Oh, and before we forget it, never be offended when you are getting feedback. That is part of the game and take certain comments also with a pinch of salt. Not everyone will either like you, your team or your idea. That is perfectly normal. The only important thing is to keep on rolling.
What Does the Seed Round Feel Like?
Dance. In simple words, seed rounds are like dancing. Gather some interest, have a couple of sessions, and take it eventually to the big stage. And never forget to choose the right partner to dance. Some are definitely easier than others, and that decision is really, really, really critical.
- In the first stage, you seek like-minded people who are interested in the type of dance you want to perform. This means that you need to find people and investors in your specific niche, genre, and industry.
- In the second stage, offer them an insightful glance into your world. Tell them what you are tackling, how you are tackling it, and why your solution should work better.
- In the last stage, it’s all about keeping the momentum, answering open questions, and getting all interested investors to a point where they can make their decision to invest or not.
All of this needs to happen at the same rhythm. A wise idea might also be to select one experienced lead investor (as we do it at 21C)
to keep the pace, the momentum, and having one point of contact.
Remember, some investors will invest only “when others give you the benefit of the doubt,” so you need at least one “crowd puller” who is sending the right message to other investors.
How to get the Commitment?
Just because some investors promised you funding, you cannot just give up everything and start dancing.
There is rhythm, and there is a process of doing everything.
Organize a video call with the potential investors, and provide a clear presentation about your team, solution, and startup. Tell them what you have achieved so far and what you can do with their help. Be clear what you require in terms of funding and how far this will get you. You have to understand that not all of them will be interested. That is perfectly fine. Don’t be afraid to get clear feedback so they can pull out early, and you can focus on those who are truly interested.
Now, take the remaining (hopefully still interested) investors to the next level, and give them an in-depth look into your business plan. Please don’t wave around with an NDA. That will spook most investors and is, in most cases, highly irritating and altogether unnecessary.
Make sure you understand the KPIs that are important for your business model. It is key that you are prepared to answer any kind of question. Most business angels are operating very professionally, have profound entrepreneurial experience, and will use such a session to get comprehensive answers to their questions.
No bullshit at this stage. How questions will be answered is as important as the quality of the answer. In the end, you need to answer the questions demonstrating insight into the market patiently. Some investors might test your resilience for the first time. Stay cool.
For the final step of the dance, confirm with the investors their commitment and the amount they are willing to invest. In our experience, business angels will invest between $10k and $75k. Of course, there are always exceptions.
At 21C, we recommend founders to use an experienced startup lawyer to support the creation of the necessary documents (Term Sheet and the SHA). We also recommend aligning investors, if possible, in a way that one investor (lead investor) can negotiate with the founder(s) the key parts of the Term Sheet. This makes life easier for all involved parties. Of course, all investors will get a chance to review the Term Sheet and the SHA eventually and provide feedback.
Convincing investors to believe in your business idea and your team and to raise capital in the seed round may be the hardest thing to do in your entire professional career (until the next round ;). With our recommendations, you can set yourself in the right direction from the very beginning and be successful in raising capital money during a seed round.
Feel free to reach out to us if you have any questions – We are happy to help you with our experience and ideas, obviously for free!