A seed round manual for founders: strategies, pitch prep, valuation, traps, tips and more. by Matilde Giglio

TL;DR - Before starting a seed round, founders should know these pieces of information about VC fit, evaluations, and tips.

Helpfulness - 5

Topic Tags - Founder advice, Equity, Seed round

Questions answered:

  • Which startups are suitable for VC funding?
  • How should a startup approach evaluations?
  • Which round you should be raising?
  • What are some tricks and tips other founders have used?
  • What “type” of seed fund are you raising?

Summary:

  • Recently seed rounds have started to look more like series A rounds because of funds ballooning and founder attention.
  • There are more VCs than ever, meaning that opportunities are plentiful for founders.
  • ‘lifestyle businesses’ don’t need funding from VCs, VCs only fund companies that can exponentially grow, so make sure your market is correct.
    • A good question to ask is: “Can your business make $100m in revenue in the next 6–8 years?”
    • VCs go with the phrase “any investment needs to be able to return the fund”
  • Don’t use valuation as a personal measure of success. Raising too much money at too high of an evaluation will hurt founders later.
  • The team, the product, and the market will be how you sell your company.
  • Raise as much as you need to make the next funding milestone, normally 12-18 months
    • The money is not for you to “survive,” its for you to hit milestones.
  • Raising money can be easy if your team has a solid reputation but if not, have a product, be able to show market fit, and fast adoption.
  • What type of seed round are you running?
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  • “Pre-revenue valuation is more art than science because all investments are based on potential, not results.”
  • Founders should not have an evaluation in their pitch unless they have already developed a term sheet. Letting the market decide will be best.
  • When researching for VCs, good places to look through include Crunchbase, AngelList, and CB insights.
    • Reading blogs and posts to determine which VCs are the best fit for you.
  • Network into warm introductions. This can be from portfolio companies, your angels, and founders in your network.
  • Prepare for the VCs with the best fit by first pitching to VCs that might be interested in you.
  • By packing many investor meetings in a week, you can create an artificial fear of missing out. Example: “I’m talking to 10 firms this week, I don’t know when my round is going to close but I’m doing a lot of investment meetings”.
  • If a VC does not invest in you but refers you to another VC, don’t accept the referral. It shows that you are not worth investing in.