Raising a Seed Round: A Step-by-Step Guide

Your first round of financing is a mixed bag. In some regards, it can be the easiest money you will ever get. In other ways, it is the most challenging. At this stage angel investors still see opportunity in getting in early, and traditional venture capitalists still have some interest if your company has large visions. At this stage you are mostly pitching vision. What your company will eventually become. You may have some initial traction, but nothing that can guarantee future earnings.

In order to help others learn from our mistakes, we wanted to create a helpful guide for raising your first round of financing.

Step 1. Identify Every Investor in the World

Fund raising is similar to classic enterprise sales. You need to generate your list of leads. Sites like AngelList and even wikipedia can help you construct this list. Start by making the largest list of angels and venture capital firms that you can make. Shoot for around 200 leads.

Step 2. (Dis)Qualify Investors

Every investor has an investment thesis. It is their vision of where the world is going. Their thesis will explain what types of companies they invest in, at what stage they invest, and how much they are willing to invest. These theses can be found on AngelList or on the investor’s website.

Use each investor’s thesis to identify why or why not they should invest in your company. Do they invest in b2b or consumer businesses? Do they invest small or large amounts? Do they want to lead or follow on? Do they invest in your vertical and/or sector?

If they are not from an investment background, but are entrepreneurs themselves (Most Angels and some VC like Andreessen Horowitz and True Ventures), have they built companies similar to the one your are building? If they have already done it once, the advice they can give you is invaluable.

As you are qualify and disqualify investors take notes as to why or why not they would be a good investor. The reasons why a potential investor would invest in you is critical to the success of your fund raising. When you meet with them you can even explain why your company fits into their portfolio by citing their thesis.

Step 3. Ask For Intros

Although investors will take meetings with almost anyone (It helps with their deal flow), investors love warm intros. Identify how you are connected to investors and ask your connections for warm intros. Explain to your connection the reasons why you want to talk to them. This should be easy to do since you have already done your homework and qualified them as a potential investor.

If you are going through an incubator such as AngelPad, YC, or TechStars, leverage this network to make warm intros to the people on your list. If you have multiple people who could make an introduction for you, ask the person who has already made them money. Investors love keeping in contact with entrepreneurs who’ve made them returns and in order to keep relationships with these entrepreneurs healthy, they will love talking with you.

Step 4. Follow Up & Background Check

After meeting the investors if they have any questions in the meeting you can’t address, follow up with an email answering their questions. If they decide they want to invest in you call around to some of their portfolio companies and do background checks on the investors. Try to do this for both successful and unsuccessful companies in their portfolio. Other entrepreneurs are a great way to vet whether investors are helpful or not.

Things to Keep in Mind

• Shorten your fund raising cycle. Once you begin the process, your timer has begun. Startups have to be fast at doing everything and this includes fund raising. Get all of your meetings back to back in the shortest time possible. Investors hate stale deals and if you have already been fund raising for 3 months they will think something is wrong with your company. Don’t let this happen.

• Use feedback effectively. If an investor asks you a question, answer it. When you are done with the meeting, add a slide to your investor deck that answers the question they asked. Should this slide go into the presentation? If it makes sense, yes. If not, add it to the appendix. If you continue getting asked this question in other meetings, then maybe it should be put into the pitch deck.

• This is not the only way to finance your venture. If you have a large network there are other methods for fund raising, but, this is what works for 95% of the people seeking financing for the first time.