Raising a seed round 101 1. How much should you raise? A simple formula is to aim for a 24- to 36-month runway, building in a 25% buffer. Why 24 to 36 months? Generally, this is the right amount of time because it tends to be about how long it takes to hit product-market fit (and ideally become default alive) and/or raise a series A. As one data point, Carta has the median time from seed to Series A as 23 months. You also probably want a 25% buffer because unexpected things always happen. Here’s a simple spreadsheet illustrating how to model this out: docs.google.com/spreadsheets… 2. What do I need to prove to investors before I raise? Generally speaking, before you raise, you should have taken the following steps: - Proof of commitment: You have left your old job and are fully committed to being a founder. You can’t expect to raise capital if you aren’t yet fully committed yourself. - Proof of work: You have done enough customer development and research on the problem to give yourself total conviction in the opportunity. Tomer London from Gusto puts it this way: “Validate the customer’s needs and your unique product insight. Speak with buyers (100+ in the consumer space, 30+ in SMB, 10+ in enterprise) to deeply understand their pain point, and offer them your solution in the most realistic way possible (a prototype is better than a pitch deck) and name a price. You’re looking for at least 40% of ‘wow!’ and ‘when can I get this?.’ Anything less is just people being nice to you.” - Proof of insight: You have some expression of your thesis. At the most, you have built a simple product and have some paying customers. At the least, you have a clear written memo and/or deck that outlines what you plan to build (more on this below). According to Ivan at Notion, “Notion was like a better mousetrap but built differently. (We wanted to decompose SaaS into software Lego blocks—text editor, databases, charts—and allow end users to create their own tools with our Legos. The value prop is to reduce their tool fragmentations and give them new power.) We knew, or at least we had the conviction, that if we build it, people will come. That first-principle conviction turned out to be true. It is also why we started the company in the first place.” 3. How do I maximize the odds of raising a great seed round? To maximize the odds of a successful raise, you need to choreograph your approach to maximize the number of potential options. Raising a seed round comes down to activating emotional triggers in prospective investors, including the fear of missing an incredible opportunity. The most surefire to get a yes from many investors is to get a yes from other investors. In short, you have to create FOMO among investors. Here’s how to do that: 1. Plan your raise You probably double the odds of success if you spend some time planning your raise. Carve out a two- to three-week window on your calendar to run your fundraise and speak to investors. Ideally, you want to speak to as many investors as possible in the shortest period of time. This compression of time creates the conditions for desire and scarcity, which can help prompt an investor to a yes. Here is a link to a sample timeline you can use to plan your raise: docs.google.com/spreadsheets… 2. Do your research on investors Assemble your target list and research each investor before your pitch window. Have they invested in similar companies? (Check Crunchbase and their LinkedIn.) What’s their check size and investment philosophy, and do they lead? (Check their fund and personal website.) What do other founders think of them? (Ask for references from other founders.) Here is a spreadsheet to help organize your outreach: docs.google.com/spreadsheets… 3. Prepare (well-crafted) materials A minimal deck and/or memo with a simple budget is all that you’ll need at this stage. You need to show there’s a real problem to solve, in a big enough market, and that you’re the one to solve it. That’s it. However, the quality of this content matters a lot. The better crafted the materials, the more persuasive they will be, and the more likely they will result in capital. You should have all your materials polished and ready to go before your pitch window, and you should be ready to tailor your pitch to each prospective investor. - Sequoia has a great template for a deck: slideshare.net/slideshow/seq… - As does YC: ycombinator.com/library/2u-h… - Rippling wrote the gold standard for a memo: slideshare.net/slideshow/air… 4. Get powerful, warm intros Who introduces you to prospective investors matters a lot more than you might think. Take the time to consider your most powerful connection to each investor before you ask for introductions. High-influence intros for prospective investors include: - Successful founders in the investors’ portfolios (regardless of investment) - Other successful founders or influential operators - Investors (angels, seed, or multi-stage) who are investing in your startup Naturally, the stronger the relationship, the more powerful the intro will be. There are also low-influence intros, such as investors who are not investing in your company (politely decline these, as they are a negative signal), and lawyers or other service providers (these are typically harmless but usually not very helpful). If you can’t find a warm intro, craft a good cold email. These don’t convert as well, but there is almost zero downside to sending one. 5. Practice and prep your pitch Your presence in a meeting matters even more than your materials. Showing up as the best version of your authentic, relaxed, and confident self is key. And that’s not something you can wing. Here’s what to do and know before you start speaking to investors: - Prepare your pitch by writing a memo. Even if you don’t share it with investors, writing a memo is a great start to sharpening your ideas and communication. - Practice your pitch a bunch of times before actually getting in front of an investor. Start real pitches with less important investors so you can iterate. - Investors tend to overweight answers to their questions when evaluating your pitch, so answer their questions calmly and succinctly. If you don’t know, simply say, “I don’t know, but I’ll get that answer for you.” Preparing an FAQ can help. - Acknowledge competitors factually, including their strengths. Then promptly move on to your strengths and your vision. Avoid disparaging competitors or spending too much time on them. 6. Start small to build social proof You don’t need a lead investor to start taking on capital in a seed round. In fact, it is often better to open a SAFE (simple agreement for future equity) at reasonable valuation and start collecting the checks of smaller angels while you are having conversations with larger funds. Not only will you be taking on capital, but you’ll build social proof for the larger investors. 7. Follow up sparingly with investors, and never chase or “back-channel” them without strength Interested investors will typically drive the process (more on this below). If you do have to follow up over email, do it sparingly, and don’t chase investors in a needy way. In such follow-ups, always pepper in some positive development, whether in revenue, a new hire or feature release, or additional angels closed (see above). Related, having an angel or existing investor check in, chase, or pressure lead checks often backfires. Savvy VCs and lead investors will take this pressure as a sign of weakness. If there is any sort of “back channel” that works, it’s having angel or existing investors saying they “vouched” for the lead check, as a type of reference. With this, you flip the power dynamic. 8. For bigger checks, never reveal who else you are talking to Mystery is always more seductive than the truth. Never reveal the actual names of who gave you a term sheet. Just accurately describe them in the abstract (and never lie). 9. You don’t have a term sheet until you have an actual term sheet Verbal commits are not term sheets. In seed, a term sheet is commonly a SAFE with a post-money cap. You don’t actually have a commitment from an investor until you have a term sheet or a SAFE. This carries through to every round you raise. 10. Your round is not closed until it’s closed While less common at seed, rounds are actually not closed until the funds wire. Set reasonable but quick dates for closes (wires). Keep everyone moving toward those dates. This carries through to every round you raise. For much more, including how to talk terms, how to choose investors, how to know if your raise is going well, and whether you should raise at all—don't miss the full post by @tmrohan and @jaltma: lennysnewsletter.com/p/raisi…