You have the idea and the plan; however, it is time to start thinking about raising capital for your venture. Seed Rounds are beneficial to kickstart enterprises and start scaling expensive operations to economies of scale. The downside is that you give equity; therefore, you must consider if fundraising at this point is a sound decision. This brings an important question. When should you fundraise?
You Have Early Revenue
At this point your company has revenue showing that what you are doing works, and investment in a seed round may expand operations and increase revenue. You could also remove inefficiencies and achieve profitability.
You Have a Great Management Team
If you have fantastic management, investors are more confident in the investment because they believe your excellent management team will overcome obstacles, beat the possible competition, and persevere through many ups and downs in a new venture.
You Have a Distribution or Tech Breakthrough
If you have an extraordinary method of distribution or incredible tech that makes a compelling investment, and you need seed round funding to realize the apex of this distribution channel or tech, raising a seed round would be an excellent decision.
While there are reasons to begin fundraising there also signs that you should not fundraise.
You do not have a co- founder
Ideally, it would not be wise to consider fundraising a seed round until you have found your co-founder. Investors are often skeptical of a solo founder without a solid portfolio. Having a a co-founder or a management team gives investors faith to rely on a team to get through the ups and downs of starting an enterprise.
You are not committed to building the company for the next 5 years.
Investors want nice returns from companies that they invest in, so if you are not serious about making your venture massive, you should not waste investors' trust, time, and money. If you pitch to investors and don't have your heart and soul into it, it reflects poorly on you.
Your startup is doing extremely well.
Do not attempt to raise a seed round if you don't have to. You should consult with your co- founder and strategize with your team to determine if it is necessary to raise a seed round because you should avoid undesirable dilution. Ultimately, fundraising may slow your company because your CEO could be doing other productive tasks.
Who To Raise From
Go for Angel Investors - these accredited investors may write checks from $5,000 - $250,000 and are usually established operators in the space.
Consider Micro VCs - These Venture Capitalist may fund small rounds and write checks from $100,000 to $500,000.
Avoid Friends and Family - Unless they are experienced angel investors.
Avoid VCs (predominantly non - partners) - VCs would likely be against an early exit due to fiduciary responsibilities. To capture a significant return on investment, they will likely push to IPO or acquisition, and they generally make slower decisions.
Where to Find Them
Signal - with this platform, you can find investors in series A rounds for companies in your industry. You then track the companies seed rounds and see who the angel investors were that co- invested in the company.
LinkedIn - With the LinkedIn premium trial. you can find which of your connections is an angel investors and connected to an angel investor.
AngelList - You can get a virtual assistant to scrape the database for angel investors in your industry that may potentially invest in your company.
What to Prepare
Deck - For your intro deck, it should highlight the attractions of the investment, and the deck you present should be complete with an appendix. If you are not great at making pitch decks you should consider visiting getdecko.com to build world- class pitch decks.
Data Room - Although financials at the pre- seed stage are not reliable, most investors want to see this understand how serious and organized you are with keeping up with your finances.
Pitch - Practice your pitch as much as you can. Consider practicing with pessimistic or practical friends and family to get their take their take on your pitch.
When raising a seed round becomes a possibility, try to weigh the pros and cons for receiving an investment. If you have a management team or co-founder, consult with them and decide if it is a sound idea. If you do choose to raise a seed round, always come prepared!