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Business Strategy

How to Raise a Seed Round: Guide for First-Time Founders

How to Raise a Seed Round: Guide for First-Time Founders

In this article, we provide a guide on how to raise a seed round for first-time founders. Most startups raise seed funding when they have a minimum viable product (MVP) and are looking to find product-market fit.

Are you ready to raise a seed round?

Before you begin the process of raising a seed round, you need early indicators signaling that you have validated an addressable and investable market. Citing Village Capital’s VIRAL Pathway: Venture Investment-Readiness and Awareness Levels Chart, you should have achieved the following: 

  • Team: Your team has a clear understanding of how the target market operates and has strong industry contacts in this market.
  • Problem and Vision: Your company can articulate system-level change and how your proposed solution will transform your target industry.
  • Value Proposition: You have evidence of differentiation through initial target customer feedback. This feedback signals that the solution solves their problem significantly better than competitors in the market.
  • Product: Your team has a clear understanding of product development costs and how to build the initial product in a cost-effective manner. 
  • Market: You have taken a bottom-up approach that shows evidence of a $1B+ total addressable market.
  • Business Model: Your team has a financial model with articulated cost and revenue projections and a strategy for hitting those projections.
  • Scale: You have evidence that customers in a niche market find value in the solution you are developing. You also have plans to saturate that niche market and expand beyond it.
  • Exit: You have evidence of growth strategies that can lead to IPO, acquisition, or a self-liquidating exit.

Consider the above as a standard, but not an absolute. Savvy founders hit or exceed these readiness milestones. That allows them to raise money more quickly and get back to what is most important: scaling their business.

What do I prepare before raising a seed round? 

Investors of all kinds understand and make bets based on risk. The more de-risked your venture is, the higher the likelihood that an investor will write you a check.

Before putting together a seed round pitch deck, complete the following tasks to de-risk your venture: 

  1. Conduct extensive customer discovery interviews to understand your ideal customer profile (ICP). Buying 5-figure market reports doesn’t count. Go out and talk to your potential users.
  2. Run through multiple iterations of your MVP. Start with our Minimum Viable Product Template here.
  3. Book at least 10 pre-sales from customers. Your goal is to have Letters of Intent (LOIs) secured.
  4. Form a Delaware C Corp and complete all regulatory filings. Don’t be penny-wise and pound-foolish. Work with a lawyer and a Registered Agent to make sure this is set up right.
  5. Have a detailed technical project scope and estimated development budget. This will allow you to build your product roadmap cost-effectively.
  6. Have a list of product dependencies and business risks and a plan for managing these risks along the way. Don’t try to hide these risks from investors as they will ask about them. Be proactive and show how you plan to address them head-on.
  7. Have an initial go-to-market strategy. You won’t have historical marketing and sales data since your venture is brand new. Have an initial list of growth experiments to test and create your own data.
  8. Identify your next key hires. Ideally, you have specific people in mind who are ready to accept and join upon the closing of your funding round.
  9. You have key milestones planned out to achieve post-investment. We are big fans of using Objectives and Key Results to map out these milestones.
  10. Have a financial model detailing the use of funds. There should be no question as to what you are planning to spend your investor’s money on.

How do you conduct a seed round? 

Here’s our step-by-step guide for how to raise a seed round. Only move forward with the steps below after you have validated that you are ready to raise a seed round.

Build Your Pitch Deck

There is a seed round pitch deck outline later in this article to help get you started.

Create Your Investor List

You are looking for a strategic partner, not just a check. The next section goes into detail about key questions to ask when identifying which investors are a fit for your business. To start, aim for 50 investor leads and update your list from there. 

Meet with Interested Investors

Send investors a targeted pitch on who you are and why they should be interested in your startup. Take an omnichannel approach and have customizable templates for cold emails, warm referral emails, Twitter, and LinkedIn.

Pitch, Pitch, Pitch

You will pitch so much that it will be all you think about. You will also have to tweak your pitch consistently to give it more clarity. When we raised a $1.1M Seed Round at Fledging, we gave over 50 investor pitches and revised our seed round pitch deck 27 times.

Secure a Lead Investor

Focus on finding a lead investor that you will work with to negotiate the investment terms. It varies, but lead investors typically invest 30% to 80% of the total round.

Negotiate Terms and Fill in the Round

You’ve signed a term sheet and are confident in your pitch. Follow up with your list of investors interested in writing smaller checks and work with them to fill out the round.

How do I find the right investors for my startup?

Ask yourself these key questions to help solidify which investors have a strong fit for your business:

  1. Investor Type: Are you looking for pure capital or someone who can play a more active role in your startup?
  2. Investor Experience: How long has the investor been working with startups? What is their track record of success? 
  3. Investor Expertise: Does the investor have expertise or connections you can take advantage of? 
  4. Investor Fit: Is this investor a good fit for your business? Do you think you will have a strong working relationship with this investor? 

Do due diligence on your investors to ensure strategic fit. A good place to start is by meeting with the founders of a few of the investor’s portfolio companies.

How long should a seed round last? 

The entire start-to-finish process of raising a seed round typically takes three to six months. Make sure that you have at least six months or more of runway left before starting to raise a seed round. The worst time to fundraise is when your company is close to running out of cash and has no other options.

Remember that you are on the investor’s timeline, not yours. It is good practice to have 10+ new conversations with investors weekly. This cadence will vary depending on how conversations with investors progress. Maybe is the worst thing you can hear. You want to get a clear yes or no - and there will be a lot of no’s.

How much equity do I need to sell in a seed round?

It is typical for founders to give away between 10% to 25% of equity at the seed stage. You will want that percentage to be lower and investors will push for it to be higher. The range will also vary depending on the current economic climate, your industry, and how investment-ready your venture is.

Seed Round Pitch Deck Outline

Below is an example outline of a seed round pitch deck. This will give you a starting point from which to build.

  • Title: Your logo, company name, contact information, and one-liner. 
  • Problem: Unserved problem that people are willing to pay to solve. This should be a painkiller, not a vitamin.
  • Solution: How will you solve the problem? Why are you the best company to do so?
  • Traction: What have you done to de-risk this venture and prove that it is investment-ready?
  • Market: Who is your customer and how large is the market? Your Total Addressable Market (TAM) needs to be $1B+ and show that you could grow your business to $100-200M in annual recurring revenue (ARR).
  • Competition: Who else is trying to solve this problem? How are you different? How will you beat them?
  • Business Model: How will you make money? What are the unit economics? 
  • Go-To-Market Strategy: What growth experiments will you run to acquire your initial users?
  • Financial Projections and Milestones: You won’t have too much historical financial data, so this will be more high-level projections. Focus on forecasting revenue and customer projections over the next 3-5 years.
  • Team: Why do you have the best people who are qualified to solve this problem?
  • The Ask: How much money are you raising and at what proposed terms? What will the use of funds be?
  • Appendix: This is where you will have detailed answers to specific questions on which investors want more data. This may include more information about your product roadmap, growth strategy, or exit strategy.
    • Pay attention to what questions you get asked by investors often and turn these into appendix slides.

Frequently Asked Questions

What are the main ways to raise a seed round?

There are many different ways to raise a seed round. Below is a quick summary of some popular options:

  1. Bootstrapping: Entrepreneurs use their personal wealth or sweat equity to grow their business without taking on outside investment. 
  2. Crowdfunding:  More than 500 crowdfunding platforms exist. Some popular platforms are Indiegogo, Kickstarter, WeFunder, and Republic.
  3. Corporate Seed Funds: Corporations like HubSpot, Apple, and Google invest in startups as a primary resource for profit, talent, and intellectual property.
  4. Incubators: Incubators offer smaller amounts of seed money and provide office space and training. Incubators typically don’t take equity.
  5. Accelerators: Accelerators concentrate on helping startups scale and typically help with introductions to investors. 
  6. Angel Investors: These investors (typically high-net-worth individuals) provide capital to startups in exchange for equity or convertible debt. 
  7. Venture Capital: Venture capitalists look for early-stage companies with high-growth potential in which to invest. Not all VCs participate in seed rounds, but the ones that do typically invest between $500,000 and $2 million.

How much detail should I try to cover in my seed round pitch deck?

When drafting your seed round pitch deck, keep it simple. As Y Combinator recommends, “The key point to remember here is that founders should strive for clarity and concision. This is not the right place to write a treatise on your market or world philosophy. The simple truth is that there isn’t very much meaningful detail to explore for most seed-stage companies. When founders pretend that there is, their stories get muddled, and the investors get lost.” 

You will notice patterns in the questions investors ask you before, during, and after your pitch. As you find these, craft your answers into more detailed slides that live in the appendix section of your deck. Where applicable, use these questions to also simplify or clarify the content of your deck.

What tools should I use to manage the fundraising process and investor relations?

You can’t go wrong with using an Excel Sheet to track your fundraising process. We recommend this template created by Brent Franson for managing your investor list.

If you are looking for software to manage this for you, we recommend trying out Foundersuite.

Looking for more resources on how to raise a seed round?

If you are looking for more resources on how to raise a seed round, here are some of our favorites:

The Pitch for Elevator Pitches

You need to be able to communicate who you are and what your startup does clearly and concisely - preferably in 60 seconds or less. This guide walks through the essential topics of an elevator pitch:

  • Problem
  • Solution
  • Target Market
  • Competition
  • Team
  • Financials
  • Traction/Milestones
  • Specific Ask/Call to Action 

Nine Business Models and the Metrics Investors Want

This talk from Y Combinator’s Startup School will cover what metrics matter most to investors. This talk addresses the following business models:

  • Enterprise 
  • SaaS 
  • Subscription 
  • Transactional 
  • Marketplace
  • E-Commerce 
  • Advertising 
  • Hardware

Guy Kawasaki’s 10/20/30 PowerPoint Rule

In the words of Guy Kawasaki, “For an entrepreneur, life’s a pitch!” This article summarizes his 10/20/30 Rule: 10 slides, 20 minutes and no font smaller than 30 point. It also includes additional helpful tips such as:

  • Do not include slide after slide about your technology.
  • Avoid making statements commonly heard by all investors. These statements include “If we get one percent of the total market we will be successful” or “We will have first-mover advantage.”
  • The rules of 10/20/30 apply to all aspects of pitching. When building your business as an entrepreneur, you pitch when you are:
    • Making sales
    • Creating partnerships
    • Hiring employees

David Rose - How to Pitch to a VC

This TED Talk by investor David Rose covers the storytelling aspect of pitching a VC. At the end of the day, all early-stage investments are about the founder, not necessarily the venture.

Need help raising a seed round?

Looking for a coach to walk you through the planning of your first raise? Fill out our contact form to request a coach. We will match you with someone from our team who will guide you through the entire process.