Ten Steps to Successfully Raise Your Seed Round In Three Months

I am a true believer in having a bulletproof process for raising money. When I first set out to raise capital for Loopd, I did not have a formula. I wanted to go out into the market with a precise plan, so I reached out to a few successful CEOs in my network. I asked each one “What were ten steps that you followed when raising your last round?” After reviewing several models I created my own, which I successfully used to raise my seed round. I’d like to share it with you below:

Step 1: Find a lead investor

The most important step to raising your seed round is finding your first investor. I’d like call this investor your “lead”. Your lead investor should be a super angel who has a large network, a respectable reputation, and a burning passion for your company. This is the hardest step, however it’s crucial to find top notch lead investor.

Your lead investor will help accelerate the entire process, so take your time, and make sure you’ve identified the right person. The lead will not only set the terms for your round, but they will also share the round with their personal and professional networks.

Step 2: Define the terms

Your lead investor and you should agree on a structure for your round. For most seed deals I would recommend using a convertible note. With this format you don’t need to set a valuation for your company, you can protect your investors with a cap, and you can reward your investors with an annual interest. A convertible note is a very fast process, however it also doesn’t create a real value for your shares until they completely convert. By contrast, a priced round is a simple format that involves a real valuation for your company calculated by the price per share and the number of shares issued for the round. This structure provides complete transparency for you and your investor, since they will be buying a number of shares based on their price. A priced round will take longer to establish the correct paperwork, will cost more in legal fees, and is only worth it if you can receive a justified high valuation. I would recommend aiming to give away between 18% to 22% equity in your first round.

Step 3: Create a dream team list

After securing the terms with your lead investor, you will want to make a list of other super angel investors who could make up your “dream team”. To find the initial set of right investors, you can go to websites like CrunchBase and AngelList. Each investor should have a history of completing deals with your lead investor and have experience investing in your sector.

Once you have your list completed, go through it in detail and narrow it down to your top twenty. Bring this list to your lead investor and ask him to go through the list with you. Your lead investor should identify and validate at least ten key investors on your list. You should then ask your lead investor to recommend ten other investors that they believe would be a good fit. This is a critical step, because there are thousands of active investors who don’t come up when searching online.

Step 4: Perform due diligence

You should be taking “smart money” rather than “dumb money”. You should complete your due diligence on every investor. Make sure that you are only bringing on investors that are advocates for your vision and have the ability to help you execute on your goal. You should have between five to seven investors that can help you in different aspects of your company. Money is as valuable as its currency, but knowledge from an experienced investor is priceless. Each investor will also complete their own due diligence on you. Most of the time this will be validated by your lead. When dealing with a super angel, the formal due diligence process will be shorter than compared to a firm. I would recommend going with super angels in your first round, because going through a due diligence with a venture capital firm or angel group will act as a time sink.

Step 5: Get an introduction

Now that you have your list and due diligence complete, you will want to get an introduction to each investor from your lead. Provide your lead investor with a template to use and have them cc you on the email. By having your lead investor send the first introduction, it will act as validation.

Imagine how many emails each investor must get every day asking for them to look at a company pitch. You need to stand out from the rest. The introduction should be very simple, and be focused on your team. At the end of the day your product and market analysis is driven by your team’s execution, and you will want to be presented as a “rockstar” by your lead.

Step 6: Use an email structure

Once you’ve received a response from an investor, you will want to reply with specific content to move the process along. Now that you have your foot in the door, you must take advantage of your leverage. Your reply should be very short, to the point, and have a clear call to action. Ask the investor to meet in person and provide a few times and locations. If the investor is not in your area, then drive, fly, or do anything else to make it convenient for them. Don’t attach a pitch deck or a one-pager to the email. This will just provide more ammunition for the investor. You will want to save your material, so that you can personally explain each detail from your perspective. The investor should become attached to your vision, and it’s important that you don’t create any opportunities for the investor to shut you down before you reach this point.

Step 7: Follow the “Three Cups of Tea”

I have developed a methodology called the “Three Cups of Tea”, which I use every day to build my personal and professional social capital. It’s the key to forming authentic relationships, which are built on transparency, honesty, and trust. This system will help you form a real bond with each investor, so that they don’t think of you as just another deal on the table. The “Three Cups of Tea” is based on the belief that you need to have three interactions with an investor before moving forward together with a deal.

The first meeting should be 80% personal and 20% professional, so that you can really get to know the investor. Share with them your passions, and ask them questions about their personal interests. The second meeting should be 50% personal and 50% professional. Now that your investor has connected with you on a personal level, they will be able look at your company from an unbiased perspective. The third meeting should be 20% personal and 80% professional. It’s a great sign if you’ve made it to your third meeting, and you will be able to close the deal if you follow the rest of the steps correctly. Your goal for this meeting is to receive a verbal confirmation from the investor that they’d like to join the round.

Step 8: Show urgency

Once you’ve received a verbal confirmation from “your” investor, it’s really important to get them to sign the term sheet. Provide a deadline for your investor in order to create an immediate action step. By showing urgency you will be able to filter out investors who are not completely serious. Time is very valuable, and you want to make sure that it’s not wasted at all. You should expedite the process as fast as possible. Let your investor know that you have to focus on your company, that you have interest from other investors, and that you have a hard timeline. Even though your round will have a final closing date, you can set several closings for your round. You will want to have your main closings at the same time to lower your legal fees, however you can use your law firm’s expertise to your advantage.

Step 9: Raise in the fall or spring

There are two main periods of the year that are considered “prime time” for raising capital. This includes from Labor Day to the end of November and from February to the end of April. Many super angels may be part of a syndicate, venture capital firm, or angel group. For them to complete their investment, they will have to get sign-off from their board. For investors who are using a personal entity, you need to make sure that they are not on vacation with their family or friends.

The summer is the most difficult time to raise your round, and I would recommend waiting for each investor to return to their work mode. You should prepare your fundraising schedule to kick off right after Labor Day. Your goal should be to complete your full round in three months. Some deals may take up to six months based on your company, however if you follow the rules above you should be able to close your round in three months or less.

Step 10: Own your demeanor

When talking to investors you must be confident and truly believe in yourself. While it’s alright to show humility and compassion. you should make sure no weakness or vulnerability is revealed. You want to act knowledgeable and persistent, while holding your ground to achieve the desired terms set by your lead. If you negotiate fairly with an investor while closing a deal, they will respect you much more individually. This is a key skill that you will use every day while running your company, and it needs to be shown while presenting yourself as a competent and stand-out leader. Be honest and truthful with each investor. If you don’t know an answer, tell them “I don’t know, however I will ask my team and get you an answer”. The second you start lying about your knowledge, it shows that you are not competent in your proposition, and it brings weakness in your ability to execute on your vision.

The ten steps above will help you start your process for fundraising. You should reach out to your network just like I did, and talk to other entrepreneurs about the process. The ten steps above will act as a foundation, however you should complete your own process. Once you have finalized your own formula, it will become much more natural. What steps do you think are most important? What would you add to your process?