3 Tips On Raising a Seed Round
Actionable fundraising advice you can put into practice today.
Fundraising during a global pandemic when your market is at a standstill can be challenging to say the least. That’s the situation I found myself in several months ago. I realized that to raise a successful seed round, and keep our business afloat, during this time required a whole other level of research, planning, and resilience. I wrote about our pre-seed fundraising process here and will focus much of this article on the seed round we closed in February of 2021.
Throughout this article, I’ll share anecdotes and operational strategies I’ve learned and implemented over the past few years. I’ll then review seed funding in a broader sense and break it down into three steps:
- Planning: documents, processes, and strategies to have in place before speaking with investors.
- Execution: how to engage with investors and run a smooth process.
- Closing: finalizing the terms for your partnership with your investors.
In the end, I’ll share general reflections and lessons learned along the way. My goal is to help other early-stage founders at the beginning of their seed financing journey.
Before you raise…
When you decide to raise money, you’re entering into a long-term relationship with investors, your team members, the market, and more. Before you get a bunch of people involved and committed to your vision, be sure this is where you want to spend your time and dedicate yourself to the process. My good friend and investor, Kendall, said it perfectly:
“Never run an ad hoc process or be half-heartedly fundraising. As a founder, you should either be fundraising or not — and if you are, it should be done with great intention.”
Step 1: Planning
In the planning phase, you’ll gather materials for your data room, work towards a perfect pitch deck, and learn all you can about the investing world. Your primary goal should be to get critical feedback on your deck and other materials.
Before creating the deck, I suggest writing out your pitch narrative along with the key points that you want to highlight throughout, as Underscore VC explained here. As a quick overview, you should expect to cover the following in your deck:
- Title: name of your company and a one-line description of what you do
- Problem: explain how this problem deeply impacts people/businesses
- Solution: describe how you solve this problem and the benefits of doing so
- Traction: outline your traction, which could be revenue, downloads, etc.
- Differentiation: share your specialty or unique insights you might have
- Business model: how you make money from selling your solution
- Market: bottoms-up market size analysis to highlight the opportunity
- Team: explain why your team is uniquely positioned to solve this problem
- Ask: how much you are raising and where those funds will get you
I found success setting up pitch deck feedback calls with as many founder friends and close advisors as possible before pitching investors. I spent the first two weeks of the planning process with back-to-back feedback meetings.
During these conversations, you should 1) get feedback on your deck and 2) signal to your advisors and founders in your network that you will be fundraising soon. While having these calls, consider these points below:
- Know who you want to know: For each feedback call, prepare a list of 3 people you’d like that person to make an introduction to. You can search for investors in their LinkedIn network (here is an example) and see if any of these investors would be a fit for your company. Alternatively, you could search for relevant investors on Signal or Twitter and go through their LinkedIn profiles to see if you share any mutual connections.
- Making the ask: After pitching the first draft of your deck, 1) write down their feedback and 2) ask if they know the people in their Linkedin network that you want introductions to. They will likely know at least one of these people, so keep track of these potential introductions using a database such as Notion or Coda.
- After these deck feedback calls, email each person you spoke with and point out specific changes you made based on their feedback. They will be thrilled to know they made a difference and, therefore, more willing to support you. Now is the time to send a forwardable email to those that offered to make an introduction for you. Below is an example of one of the forwardable emails I used to ask Andrew (friend) for an introduction to Sahil (potential investor):
Sahil, I thought it would be great to chat, given your focus on supporting ventures solving difficult, tedious, and complex challenges with elegant solutions.
For context, my name is Keith, and I started BusRight to digitally transform the antiquated $25B school bus industry through a logistics platform that powers efficient bus routing, dynamic driver navigation, and real-time parent communication technology. By digitizing our nation’s school bus routes, we can analyze fleet performance, improve routes in real-time, and increase vehicle safety. Our product went live several months ago and [Insert impressive early proof points here: customers, users, downloads, or revenue.]
We are backed by Underscore VC, the founder of Kayak, and other prominent angel investors. We kicked off our Seed round and are on our way to bringing cutting-edge technology to the largest mass transit system in the country.
Let me know if you’re around this week to schedule a get-to-know chat. Looking forward to learning more about your experience in product/launch strategy and getting your feedback on BusRight.
Building Relationships With Investors
Ideally, at this point, you have spoken to 20+ people to get feedback on your deck, and each one of them offered to make 1–3 introductions for you. For better or worse, connecting with an investor without a warm introduction is extremely difficult. To make the most of these treasured leads, I recommend that you:
- Take as many meetings as possible. Contrary to popular belief, at this stage, the more conversations, the better. Why? You’re still figuring out what a “good” investment partner looks like for you, and more conversations will significantly accelerate your learning. For my company BusRight, I targeted seed-stage transportation technology venture firms; however, some of our most helpful investors don’t fit that profile. I pitched 138 investors during our seed round, many of these engagements involved multiple conversations, so this can be a significant time commitment.
- Know your investor: You should research the investor you are scheduled to speak with ahead of time. Demonstrate that you put time into learning about their background and interests. More information about investors can also be found in articles the media has written about them. Find these and read them, if you can, as they’ll give you invaluable information ahead of your meetings. For example, I found out that Minal (now an investor in BusRight) was one of the first lawyers for Uber and her unique regulatory and legal background made her a perfect fit for our journey. This research can take up to 30 minutes per investor as you will be reading articles they’ve written or been featured in, listening to podcasts they’ve been featured on, and more. Questions you might want to answer while researching: What stage do they invest in? What companies/domains are they excited about? What is their average check size? What specific companies have they invested in? What do they like to do for fun outside of work?
- Pitch with passion. If you run a tight process and have a strong network of people willing to make introductions for you, you could have 40 meetings lined up with investors in the first few weeks of “officially” kicking off your raise. Every conversation counts. Some of the best things you can do in these conversations are 1) Speak slowly. Speaking fast runs the risk of losing their attention. Never underestimate the value of taking a breath. 2) Have a smile on your face. Smiles make people smile, and at this stage, they are investing in you. 3) Ask the investor questions about herself. For example, “I saw your article about x, and have a question about y.” or, “What drew you from x company to investing at y firm?” 4) Don’t come out of the gate acting like you know the answer to everything. Humility is endearing and easy to connect with, which is what you want.
- Keep your head high: When talking to hundreds of investors, you will accumulate a lot of rejections. Some investors may not reply to you, and others might simply not see your vision. But keep reaching out to people. The day we closed our round, we hit 100 total rejections from angel investors and, but we had 38 new investors willing to commit $2.5 million to our company and vision. It’s worth noting that most of our investors committed later on in the process after we amassed a majority of our rejections. Sometimes it can take 100 rejections before getting your first commitment.
- Align yourself and your team on key metrics. One piece of critical feedback we got from investors was that we needed to hit $1M in Annual Recurring Revenue (ARR) to successfully raise our Series A round, which is the next step after our seed round. Initially, we had set out to raise $1.5 million, but this wasn’t enough capital to achieve the $1M revenue goal. Thus, we were setting ourselves up for failure. After some long conversations with our team and existing investors, I increased our round to $2 million. Eventually, we ended up exceeding our goal and closed the round at $2.5 million. Be ambitious with your round, and make sure it will allow you to deliver the product features and revenue targets needed for success at the next stage. Plus, I’d suggest under-promising and over-delivering.
Note: If you’re raising less than $2–3 million, a convertible note might be a good vehicle to raise on, a “short-term debt that converts into equity” or SAFE, which is like an option or warrant that allows an investor to buy shares in a future priced round without accruing interest in the interim. This approach will save you time and money. Y Combinator, a renowned startup accelerator, put together these templates you can use when issuing a SAFE.
Build Your Support Network
Throughout the planning process, you will fill your calendar with a myriad of introductory meetings. While the CEO is generally leading the charge for fundraising, she almost always has a loyal army standing beside her. Don’t forget to cultivate these relationships and:
- Find your Neil: Neil is our Head of Operations at BusRight. He’s detail-oriented, knowledgeable about raising money (from his work as a partner at Dorm Room Fund), and can build a process for almost anything. After I failed to close our round on the desired timeline, I reached out to Neil for support in our second effort. From the start, Neil created a robust investor CRM, was a sounding board before and after investor calls, and prospected to ensure we had a consistent flow of investors at the top of the funnel.
- Find your group of founder friends. I cannot overstate the importance of founder friends during your fundraising journey. They can provide invaluable insight, make warm introductions, help you negotiate terms, and guide you through the inevitable emotional rollercoaster. For me, this includes folks like Vinayak and Polina. Polina provided honest feedback on our deck and offered to review the terms of our deal. Vinayak set up Pitch Club, a small group of Boston founders who support each other in their fundraising and company-building journey. He invited me to present to this group, and I received feedback from the other founders on that call, which ultimately led to friendships and introductions to several new investors.
- Pull together a strong team of advisors made up of industry leaders and successful founders. By involving well-known industry experts in your company, you can quickly increase your perceived value. Our advisors at BusRight include the founder of Kayak, founder of Wanderu, former Chief of Education for the City of Boston, and other transportation and technology leaders. Moreover, as Kendall wrote in Forbes, “Successful founders can provide the best advice. I reached out to many people who were one or two steps ahead (Series A/B stage), and they gave me tremendous insight, ripping apart my deck and pitch until they were perfect.” Never underestimate what you can learn from others who were just in your shoes.
- Set expectations with your team. Your team will be curious to know how the fundraising process is going. Some team members might even be included in investor calls. When rejections pile up, it can hurt team morale. Furthermore, TechCrunch headlines can set unrealistic fundraising expectations for your team, so it’s important to share the realities of embarking on this journey by being honest with them while keeping spirits high. One way I did this was to update my team weekly on our progress. Below is an email I sent after I failed to close our round before the holidays:
Step 2: Execution
Before taking a meeting with an investor, make sure to have a completed data room in your back pocket. Your data room is a glorified folder that houses important documents and business information. It’s one of the only activities in the fundraising process you have complete control over.
Before fundraising, we put all of our materials (Cap Table, Five Year Financial Model, Customer List, Supporting Research, Legal Documents, etc.) into a shareable Google Folder, though DocSend works too. By the time your data room is complete, you hopefully will have received feedback on your pitch deck and have several founder friends or advisors willing to introduce you to investors.
Just as investors want to know who you are as a person, it’s equally important to get to know the investor. During your pitch, highlight similarities, recognize their past work, and focus the conversation around them. This may sound counter-intuitive, but a “people-first” approach will make them feel heard and demonstrate that you are coachable. Plus, you want to work with people who you can build a relationship with, as you’ll likely find that the relationships you cultivate on this journey are the most meaningful part of building a business.
In addition to getting to know each other, investors will generally want to ask similar questions about you and your venture. See Pillar’s here and scroll down to “Handling Tough Questions.” I can attest to the questions that they have outlined.
While executing on your fundraise, it’s important to be resilient. Not only will investors ask you tough questions, but some may not be respectful of you and your time. While these situations are fortunately the minority, they can have a disproportionate impact on you mentally. This is why resilience is key in this stage.
Step 3: Closing
The goal is to reach that exciting moment when it’s time for you to choose your investors (if you’re lucky to have options) and close your round. In making your decision, I want to emphasize the importance of relationships again.
It’s a two-way street, and as much as investors are looking for partnerships that provide a positive investment return, you should collaborate with firms that are passionate about you and your venture. While having these investor conversations, don’t forget the following:
- Understand who is truly interested. You want to work with a firm that shares your values and wants to see you succeed. It will be clear which investors are truly interested. Indications include sending thoughtful follow-up questions, visiting your office (if you have one), speaking with your customers, team members, and more.
- Ask tough questions. Just as investors ask you questions, you should also be asking questions to learn about their values, how they work, and what a future partnership might look like. Here are a few questions that you should ask investors: 1) Why did you choose to pursue a career as a VC? This question will help you to uncover their motives. 2) Where do you typically invest? Listen for average check size, stage, and domain focus. 3) What does your follow-on strategy look like? AKA, do they have money to support you now and in the future?
- References for investors: References for your investors are essential. Try and connect with 1–3 founders who have worked with that investor previously. When an investor commits to backing you, you’re in the honeymoon phase. Your business will go through many twists and turns and you want to learn how that investor handles tough situations. You can ask other founders if they know folks who’ve worked with that investor, you can reach out to founders in their portfolio on LinkedIn, and ask the investor for references directly. Try and talk to founders they’ve worked with whose companies didn’t have a successful outcome as you want to know how they function when the going gets tough.
- Say thank you. Once you’ve selected your investors, make sure to call each of them individually and thank them. This personal touch goes a long way and sets the foundation for the relationship moving forward. A handwritten note goes even further and leaves a lasting impression.
It can be easy to get lost during the intense process of raising your seed round. Take time and reflect on the lowest of the lows, the highest of the highs, and everything in between. Try to remember what’s important and be sure that your journey remains intentional. A couple of things I learned along the way:
- Never, ever lose sight of why we were raising money. Raising money is not the goal. Having resources to create a product that solves a big problem and attracting A+ talent is our goal. In other words, it’s not just the money we are looking for in this relationship.
- Prioritize relationships. I often tell the BusRight team that products change, markets change, companies perish, but relationships last forever. I’ve run into thousands of people during the journey building BusRight and the fundraising process in particular. You have the ability to either build meaningful relationships or burn bridges. Be honest, open, help others first, and don’t expect anything in return.
- Celebrate wins. We are eager to celebrate new hires, new customers, and new investors. Funding is not our primary goal; it is just a tool for achieving these more critical milestones.
- Expect some hard days, and rely on your support network to help make it through. Our fundraise was emotionally draining. We raised during the COVID lockdown as our market (school buses) was almost nonexistent. I let the process take up too much of my mindshare. Hearing 100+ rejections from credible investors, operators, and founders is tough. Luckily, I was back home (and still am) living with my parents, so the bagel in the morning from my mom, dinner from my dad, and pickleball games on weekends with my aunt helped me forget the downfalls and kept me grounded. Work is not everything, and it’s important to have a support system outside of it.
- Your team is everything: As a founder, you will receive high praise for successfully raising venture capital. Always remember, you are constantly selling what your company has accomplished — which is the sum of the output of your team members — that’s it. Your team is why you can hopefully be attractive to investors. I would love to see more coverage of early team members that contribute to growth instead of the sole focus on a founder.
- Investment is the beginning, not the end. Your investors expect to be paid in full before you will earn a dime on your equity. As the recipient of venture capital, I am committed to building a billion-dollar business because it’s the goal we want to achieve as a team and that’s what our investors expect when you take their money. If this challenge excites you, start your process, raise your round, and get back to building your dream!
A Bit About Me
My name is Keith, and I’m the founder and CEO of BusRight, a transportation technology startup I founded while attending Northeastern University. Over the past few years, I’ve raised over $3 million from Underscore VC, Long Journey Ventures, the founder of Kayak, Quizlet, and folks who were early team members at Lyft, Postmates, and Pinterest.
I’m always happy to share my experiences with other founders. If I can be helpful to you in any way, don’t hesitate to reach out to me at email@example.com.