10 KEYS TO RAISE SEED CAPITALBusiness & Finance LibrariesUpdated on Mar 24, 2019 View more like this | Visit India, UN | Contact Suraj Mahato |
One of the biggest challenges when you decide to launch a startup is to obtain financing to develop the project. The seed capital or seed funding is one of the methods used by entrepreneurs. Raising this type of capital is not easy, but if you understand how it is done and you are prepared, you will have a better chance of success. Although nothing guarantees that you can raise financing for your startup , the following tips from Eran Galperin can help you get seed capital.
1. CHOOSE THE BEST MOMENT
If you have a good idea and do not have the capital to start, it may be the best time to raise seed capital. Many entrepreneurs expect to have a product developed to do it, since the valuation of their project will be greater, you can get more money for less shareholding and many investors like to see more developed products.
In case you have already launched your product or service you need to show that the project has some traction and that it has found its place in the market . If an analysis of the situation does not show that traction, I recommend that you take a break, work the development of the clients until you get numbers (in sales, users, etc.) that show that your initiative has potential. Then it will be time to visit the investors.
2. RAISING SEED CAPITAL REQUIRES ABSOLUTE DEDICATION
If you think that with few meetings you can get the seed capital you need, you're wrong.
First of all, you will have to attend many meetings (maybe 50 to 100) before closing something. For this it will be necessary for one of the founders to dedicate himself completely to this task . Because it's not just going to meetings: it's getting contacts, traveling, tracking, preparing documents, etc. In general, whoever assumes this role is the CEO.
Second, because everything requires practice . And the only way to improve discourse and presentations is to do it over and over again. The more you try, the better you will be. And finally, because momentum and enthusiasm are important . If the months pass between meetings, your enthusiasm and that of your investors will be diluted and will not help to close agreements or attract new seed capital.
3. GO TO ANGEL INVESTORS TO RAISE SEED CAPITAL
Leave the venture capital funds for another time . In the first stage you will not need more than 1 million (at the most) and you can get this capital of angels and seed funds. The opposite will only bring you complications in this initial moment.
Resorting to investment funds involves a degree of complexity and commitment that you may not be ready to take on. And a lot of wear and tear, since you will rarely be able to close an agreement in a few months. It is only worth it if you are a very recognized or very generous investor willing to finance the first round in its entirety.
You can start contacting venture capital funds from the beginning, laying the foundation for the relationship. And when you have achieved the seed capital, have a base and go to the second round, you will not have to start the contact from scratch.
4. MAKE A LIST OF POSSIBLE INVESTORS
Of the investors that you contact, only some will be interested in your project. To raise the seed capital you need, you must create an extensive list of at least 100 potential investors . To know which of the investors is the most convenient for you, find out if you have experience in your market, if you have made similar investments or if it gives you added value.
Some of this information is available in AngelList , where you can filter investors according to the market and the investments made. You can also find out who approaches the profile you need . Once you have your pre-selection, look for their profiles on Linkedin, look for posts on blogs and on the Internet to make sure that it's worth going to that particular investor.
5. DEVELOP YOUR NETWORK OF CONTACTS
You can not get contacts from one day to the next, and the beginning is the most difficult. One of the priorities at this stage should be to enter and participate in networks of contacts . There are different platforms and programs, like 500 startups , that can open many doors for you.
Before going out to look for seed capital, make sure you have built a good network, in which you include other similar startups and keep them in touch with each other. If you manage to enthuse them with your project, you will have a lot of livestock. Although we have the image that an investor is the ideal person to introduce ourselves to other investors, there is nothing like the founder of another startup that recommends you to your own investor .
You must take your time to create this network of contacts. You have to know who can introduce you to whom and make the necessary contacts to reach the 100 potential investors on your list. It would be ideal to be able to include as consultants recognized people in your area.
6. TELL A GOOD STORY
For some reason, most entrepreneurs believe that we have to prepare a good speech and a good presentation for meetings with investors. But this does not always work.
It may be that when you go in search of venture capital you are probably in a more advanced stage. But when you seek to raise seed capital you are still very small, you are just beginning, and there is no discourse or powerpoint that has as much power as a good conversation . Especially if you can tell a good story about how your product fits into the market and how you see your future in the coming years.
WAS THE INVESTOR INTERESTED IN THE PROJECT?
If you manage to put yourself in the position of the investor and understand what part of your project motivates you, you will have many more opportunities to develop an interesting and productive conversation. For example, a potential investor who understands your project does not need to explain the purpose of the project. You already know. Instead, focus on explaining how you will do it or how far you will reach it .
The practice will help you to do it better and better and over time it will not require too much effort. For this reason I advise you to first visit the most " cool or friendly" investors , who will not judge you so much because of the mistakes of a rookie, and visit the difficult ones once you have practiced enough.
IF YOU WANT MONEY YOU HAVE TO ASK FOR IT
It is very good to talk and receive feedback from investors, and it can even stimulate conversation, but you have gone to raise seed capital. Clearly tell them what you need and ask them if they are willing to participate.
7. IF YOU ARE NOT EXCITED, DO NOT WASTE TIME TRYING TO CONVINCE THEM
If at the end of the first meeting an angel investor does not seem very motivated with the project, the most likely thing is that he will not invest. The problem is that very rarely they will tell you not from the beginning, with what you will lose a lot of time of meetings and follow-up for nothing.
As much as you dedicate yourself completely to this task, it is important that you manage that time well and not waste it in lost cases . This is especially true with venture capital funds, so I recommend you leave these meetings for later and focus your efforts on seed capital.
8. REWARD THE FIRST WHO RISK FOR YOU
Many investors will only risk it for you when they see that others have done so too. In the stage of raising seed capital, the hardest thing to achieve is the first investor, the one who decides to bet on you even if nobody else supports you.
Because you want to motivate them to take the risk and because you want to reward the one who does it, you should think about offering some extra benefit to the first investors . For example, you could offer them a position on your board or actions. You can consult my article on how to get the best Advisory Board for your startup to know which people you should have in the project, and in case you want to reward investors with shares, you can be useful this other on the distribution of equity with investors and partners .
9. DEVELOP YOUR ANGELLIST PAGE
AngelList has incredible potential and can help you get in touch with investors. But as in social networks, you have to develop an interesting and attractive profile.
This means that your profile has to be complete and updated . It includes the investors who have committed themselves to your initiative, the new team members and clients. Work on the content and presentation . Get the most out of the network with the options to share to be discovered.
The exposure you have on this platform does not only depend on you, although the more activity there is in your profile, the more possibilities you will have. I recommend you make updates on your page, keep it active and show your progress.
10. CLOSE THE DEAL
Once you open the investment round, you must close it. This sometimes requires assuming that an investor has rejected you. But do not be discouraged, it's normal. Follow with another, and with another. Who knows if the next meeting in your agenda is with the person who is going to finance you or connect with someone willing to contribute the seed capital you need.
The important thing is that you believe in your proposal and in each meeting take advantage of the feedback and learn from the mistakes to tell your story better.
1. CHOOSE THE BEST MOMENT
If you have a good idea and do not have the capital to start, it may be the best time to raise seed capital. Many entrepreneurs expect to have a product developed to do it, since the valuation of their project will be greater, you can get more money for less shareholding and many investors like to see more developed products.
In case you have already launched your product or service you need to show that the project has some traction and that it has found its place in the market . If an analysis of the situation does not show that traction, I recommend that you take a break, work the development of the clients until you get numbers (in sales, users, etc.) that show that your initiative has potential. Then it will be time to visit the investors.
2. RAISING SEED CAPITAL REQUIRES ABSOLUTE DEDICATION
If you think that with few meetings you can get the seed capital you need, you're wrong.
First of all, you will have to attend many meetings (maybe 50 to 100) before closing something. For this it will be necessary for one of the founders to dedicate himself completely to this task . Because it's not just going to meetings: it's getting contacts, traveling, tracking, preparing documents, etc. In general, whoever assumes this role is the CEO.
Second, because everything requires practice . And the only way to improve discourse and presentations is to do it over and over again. The more you try, the better you will be. And finally, because momentum and enthusiasm are important . If the months pass between meetings, your enthusiasm and that of your investors will be diluted and will not help to close agreements or attract new seed capital.
3. GO TO ANGEL INVESTORS TO RAISE SEED CAPITAL
Leave the venture capital funds for another time . In the first stage you will not need more than 1 million (at the most) and you can get this capital of angels and seed funds. The opposite will only bring you complications in this initial moment.
Resorting to investment funds involves a degree of complexity and commitment that you may not be ready to take on. And a lot of wear and tear, since you will rarely be able to close an agreement in a few months. It is only worth it if you are a very recognized or very generous investor willing to finance the first round in its entirety.
You can start contacting venture capital funds from the beginning, laying the foundation for the relationship. And when you have achieved the seed capital, have a base and go to the second round, you will not have to start the contact from scratch.
4. MAKE A LIST OF POSSIBLE INVESTORS
Of the investors that you contact, only some will be interested in your project. To raise the seed capital you need, you must create an extensive list of at least 100 potential investors . To know which of the investors is the most convenient for you, find out if you have experience in your market, if you have made similar investments or if it gives you added value.
Some of this information is available in AngelList , where you can filter investors according to the market and the investments made. You can also find out who approaches the profile you need . Once you have your pre-selection, look for their profiles on Linkedin, look for posts on blogs and on the Internet to make sure that it's worth going to that particular investor.
5. DEVELOP YOUR NETWORK OF CONTACTS
You can not get contacts from one day to the next, and the beginning is the most difficult. One of the priorities at this stage should be to enter and participate in networks of contacts . There are different platforms and programs, like 500 startups , that can open many doors for you.
Before going out to look for seed capital, make sure you have built a good network, in which you include other similar startups and keep them in touch with each other. If you manage to enthuse them with your project, you will have a lot of livestock. Although we have the image that an investor is the ideal person to introduce ourselves to other investors, there is nothing like the founder of another startup that recommends you to your own investor .
You must take your time to create this network of contacts. You have to know who can introduce you to whom and make the necessary contacts to reach the 100 potential investors on your list. It would be ideal to be able to include as consultants recognized people in your area.
6. TELL A GOOD STORY
For some reason, most entrepreneurs believe that we have to prepare a good speech and a good presentation for meetings with investors. But this does not always work.
It may be that when you go in search of venture capital you are probably in a more advanced stage. But when you seek to raise seed capital you are still very small, you are just beginning, and there is no discourse or powerpoint that has as much power as a good conversation . Especially if you can tell a good story about how your product fits into the market and how you see your future in the coming years.
WAS THE INVESTOR INTERESTED IN THE PROJECT?
If you manage to put yourself in the position of the investor and understand what part of your project motivates you, you will have many more opportunities to develop an interesting and productive conversation. For example, a potential investor who understands your project does not need to explain the purpose of the project. You already know. Instead, focus on explaining how you will do it or how far you will reach it .
The practice will help you to do it better and better and over time it will not require too much effort. For this reason I advise you to first visit the most " cool or friendly" investors , who will not judge you so much because of the mistakes of a rookie, and visit the difficult ones once you have practiced enough.
IF YOU WANT MONEY YOU HAVE TO ASK FOR IT
It is very good to talk and receive feedback from investors, and it can even stimulate conversation, but you have gone to raise seed capital. Clearly tell them what you need and ask them if they are willing to participate.
7. IF YOU ARE NOT EXCITED, DO NOT WASTE TIME TRYING TO CONVINCE THEM
If at the end of the first meeting an angel investor does not seem very motivated with the project, the most likely thing is that he will not invest. The problem is that very rarely they will tell you not from the beginning, with what you will lose a lot of time of meetings and follow-up for nothing.
As much as you dedicate yourself completely to this task, it is important that you manage that time well and not waste it in lost cases . This is especially true with venture capital funds, so I recommend you leave these meetings for later and focus your efforts on seed capital.
8. REWARD THE FIRST WHO RISK FOR YOU
Many investors will only risk it for you when they see that others have done so too. In the stage of raising seed capital, the hardest thing to achieve is the first investor, the one who decides to bet on you even if nobody else supports you.
Because you want to motivate them to take the risk and because you want to reward the one who does it, you should think about offering some extra benefit to the first investors . For example, you could offer them a position on your board or actions. You can consult my article on how to get the best Advisory Board for your startup to know which people you should have in the project, and in case you want to reward investors with shares, you can be useful this other on the distribution of equity with investors and partners .
9. DEVELOP YOUR ANGELLIST PAGE
AngelList has incredible potential and can help you get in touch with investors. But as in social networks, you have to develop an interesting and attractive profile.
This means that your profile has to be complete and updated . It includes the investors who have committed themselves to your initiative, the new team members and clients. Work on the content and presentation . Get the most out of the network with the options to share to be discovered.
The exposure you have on this platform does not only depend on you, although the more activity there is in your profile, the more possibilities you will have. I recommend you make updates on your page, keep it active and show your progress.
10. CLOSE THE DEAL
Once you open the investment round, you must close it. This sometimes requires assuming that an investor has rejected you. But do not be discouraged, it's normal. Follow with another, and with another. Who knows if the next meeting in your agenda is with the person who is going to finance you or connect with someone willing to contribute the seed capital you need.
The important thing is that you believe in your proposal and in each meeting take advantage of the feedback and learn from the mistakes to tell your story better.
