How to quickly and efficiently raise seed funding for your startup.
At my last company, Speek (acquired by Jive), we raised $1.2 million in seed funding and eventually raised $6 million over three rounds. Our seed funding process was launched and closed in 2 months, and on the East Coast in Washington, D.C. – not Silicon Valley. Here were some of the key decisions and takeaways that helped us raise our seed funding quickly and efficiently.
1. It’s very hard to raise seed funding on the side, so staff appropriately.
It takes a lot of time and effort to raise seed funding quickly–so staff for it. It was primarily all John Bracken (our CEO) and I did for two months. You have to be very diligent in reaching out, following up, setting up meetings, pitching, requesting intros and answering questions, which simply can’t be done well on a part-time basis. Additionally, having two people helped us brainstorm better responses to questions and perfect the pitch. We felt that it was crucial to shield the tech team from the process. We left them alone to do what they do best–build cool stuff. Our CTO spent only a few hours during the process to address technical due diligence questions and shake a few hands. This was key to keeping the business going and building additional product momentum.
2. It’s a numbers game. Go get meetings, and get lots of them.
It is very difficult to know what the right fit will be with early-stage investors and angels, so schedule lots of meetings. We averaged approximately three meetings a day during the two months–which helped us perfect our pitch, too. We sent thoughtful, cold emails to known active investors, leveraged LinkedIn and requested intros from fellow fundraising startups. We designed our seed funding deck for both an in-person walk through and for investors reading it without us and always attached it to the email. We kept intro emails brief, but informative, hitting all the key takeaways–product, experience, traction, and how much we were raising–with as few words as possible. Investors are too busy (or attention deficit) to cull through massive amounts of detail or rely on vague emails with little teasers.
3. Force an answer from all investors.
Many investors avoid saying yes or no. They linger without committing, always saying they will stay in touch. We refused to waste our time with a large pipeline and were determined to move everyone into the pass or commitment column as quickly as possible. Shortly after we had a meeting or two with an investor, we politely asked if they were a yes, a no, or if there was a specific question that was holding them up, so we could address it. If this didn’t move them to an answer, we considered them a no.
4. Leverage momentum to overcome investor hesitation.
Many investors will prefer to wait a while and monitor progress before writing a check. We leveraged our momentum and milestones to move investors to overcome this hesitation. In Speek’s case, we would send updates on how we continued to accelerate our week-over-week growth rates, won the Distilled Intelligence 2.0 pitch event, received great press hits, trended on AngelList and closed on investors which limited availability. We leveraged each of these to follow up with our active pipeline. Again, having our tech team focused solely on improving the product was crucial to building the momentum.
5. Focus your message and have a clear plan.
Be focused. Everyone wants to change the world instantly and be the best in all adjacent markets, but we believe that we can only do one thing very well at a time and were very clear about our singular focus to innovate the antiquated, 20-year old conference calling experience by upgrading it for the web. Of course we have long-term ideas, but we made sure to stay focused on audio conference calls, regardless of how many investors wanted to discuss the larger unified communications space of video, screen sharing and others. Many investors responded well to our strategy and appreciated our focus.
6. Use convertible notes and stick to your terms.
Convertible notes are much faster, cheaper, and easier to execute for seed funding than equity rounds since you do not have to worry about negotiating every detail of a term sheet and creating a valuation for something nearly impossible to value. Plus, it keeps your cap table simple. There were handfuls of interested investors who walked away from us because we had a note, but no deal will satisfy everyone. And if you aren’t receiving push back on your cap, then you have probably set it too low.
7. Time is money (literally, in this case)–so be responsive, but efficient.
We made sure to reply to questions quickly and thoroughly, but didn’t waste time on every random request. While we spent many late nights on thoughtful analysis for investor inquiries, we politely declined others, such as providing a formal business plan. We felt that the plan would be obsolete by the time the ink was dry and it wouldn’t help them understand our business any more than our presentation already did. We created an FAQ document for the common questions so we could quickly paste canned, yet thoughtful, responses into emails. We didn’t cater to each diligence request list and simply put everything we had in one Dropbox folder (financials, corporate docs, personnel docs, intellectual property, business info, etc.) and shared it with all investors that moved into the seed funding diligence phase.
8. It’s a seed round, not Series A. You don’t need all the answers, but you better know what the questions will be.
We were comfortable explaining how we were a seed-stage company and didn’t have all the answers yet, such as pricing, paywalls and conversion metrics, or when certain features would be released. However, we made sure to have good thoughts on each subject and explained our assumptions in addition to our methodology of how we intend to test and measure each of these assumptions. We also made sure to know what our Series A milestones were and walked investors through how we planned to achieve them with our seed round capital.
Finally, Series A funding is becoming increasingly more difficult to obtain, make sure that you raise enough money now to give you sufficient time to hit those Series A milestones. Startups are often too worried about dilution, instead of whether they are capitalized enough to dominate their space. You can never predict what crunch, cliff, crisis or collapse will make investors pucker, so take as much money as you reasonably can, and take it now. Get the seed funding in the bank and get back to growing your business.
I hope this helps you successfully raise seed funding for your startup. Please share this article with a friend who could also benefit. You can also follow me on Instagram or sign up for my free weekly digest about ways to travel the world, build a successful business or career, and make a difference at the same time:
How to raise seed funding quickly and efficiently