What you need to know before raising a seed round

I recently posted this on my twitter @seanrneary and it got a lot of attention and likes, so I thought I should share it here.

I am writing a thread series on things you need to know before raising money, from seed to IPO.

What you need to know before you raise a seed round (step-by-step guide)

👉 1. Understand what stage your company is at.
Depending on factors like team experience and traction profile you may need to raise a pre-seed round before you can raise a seed round.
Let's look at the difference between the two.

👉 1.1 Pre-seed: Avg. round: $500k
For a startup that has a prototype or alpha. No or just a few users.
Often raised on a SAFE or convertible note - evaluating your startup is hard at this moment in time.

👉 1.2 Seed: Avg. round: $1M - $10M
For a startup that has a fully functioning product, some revenue. Some level of product market fit. Users who like and need your product. A small core team.
Be ready to give up ca. 10% - 20% equity. But aim for less than 25%.

👉 2. What type of firm to raise from?
You need to decide and make a list of potential firms.
There are several types of investors with different profiles. Seed specialists or multi-stage.
Let's look at the difference.

👉 2.1 Seed specialists:
A seed specialist is mostly focused on the seed stage (sometimes also series A).
They are specialists in helping you find deeper product market fit and get enough business traction to go on to raise a series A.
Example: First Round Capital

👉 2.2 Multi-stage:
Multi-stage VCs provide financing from seed to IPO.
A top-tier multi-stage firm can be better to raise from than a bad seed-only firm, but a top-tier seed VC is better to raise from than a mediocre multi-stage at this moment in the journey.

👉 3. Know how to tell your story.
Now that you know who you want to raise from you need to put together a deck. Keep it short and to the point. VCs get hundred of decks - make yours concise and don't waste their time.
Nice explanation from First Round's Bill Trenchard:
https://www.youtube.com/watch?v=rZxUARmD0kY

👉 4. Get your numbers right!
Once you've built a relationship with VCs raising becomes a people's game, but numbers are equally important especially early on.
Let's look at the metrics you need to know in your sleep.

👉 4.1 Crucial metrics:

How big is your market? (TAM,SAM,SOM)
Unit economics
CAC
LTV
MRR
MAU
Gross Margin
Cashflow statement

Track them easily at www.microgoals.so
There are other KPIs you can track but if you have a handle on the above you'll be off to a good start.

👉 5. Set goals and a timeframe.
Now that you are armed with your preferential investor list and deck it's time to go out to market.
The average amount of investor meetings to raise a seed round is about 50-60 meetings.
Schedule those meetings in a two-month window.

👉 5.1 Drum up interest.
You want to stay relevant enough so that when you had your last meeting, you're still at top of mind to the first investor you pitched.
From the list, pitch the least fav. investor first.
Every meeting will result in invaluable feedback - track it!

👉 6. Track & Iterate.
If you've tracked your feedback correctly you'll quickly see a correlation between feedback.
It will provide you with the feedback you need to iterate and hopefully win the most fav investor you'll pitch last with the best version of your deck.

👉 7. Try to meet face-to-face.
VCs are people. They have hobbies, and families and are no different from you and me. Try to arrange your meeting so that you have enough time (between discussing the deck) to make a connection. Even if this time they pass, a connection is a win.

👉 8. Create demand.
Now that you've concluded your meetings you should have a few VCs interested.
You can use this demand as leverage, and create FOMO among investors. Especially if you have a cue from a great name firm, you'll see that most will also want a piece of the pie.

👉 8.1 Without demand you are just a startup in need of cash.
You can use demand-leverage in the following ways:

Better terms
Faster close
Larger round
Multiple great VCs on board

👉 9. Lead Investor.
Make sure you're happy with the terms and sign the sheet. Having an investor on board that knows your space and has a proven track record can be a game-changer.
The more known the name the easier it will be to fill the round and subsequently grow your startup.

👉 10. Reach out to Angels.
We all have entrepreneurs/angels we look up to. Having a lead investor on board will make it easier to get angel money to fill in the round and possibly get actual operational support from some of the greatest minds in the startup scene.

I hope this post was helpful to you in getting closer to raising your first round.