Whatever people say about there being too much money out there, or not enough, about angels and VCs fighting to get a share of your business, or shutting you down, raising capital is hard work, always, and from the very beginning. It’s a demanding process that requires you to learn a dance you are most certainly unfamiliar with. It is best served by a conscientious, diligent and long-term approach to investor relations. Successful fundraising requires persistence and enthusiasm as well as constant and sustained efforts over the lifetime of your business if you want to optimize growth and eventually hope to accomplish your vision.
In this Founder’s Guide series on seed financing you might find a few useful tips and tricks that might guide you through your journey as an early stage entrepreneur.
Episode 1: Am I ready for a seed round?
It’s all about building solid foundations. Family, friends and angels can help you get off the ground with the small amounts you need initially, but you will soon need (and want) to reach out to other players outside of this immediate circle (incubators, accelerators, VCs and the like).
✓ People, people, people — The first thing you need to figure out is whether or not you have the human resources and competencies in-house necessary to effectively execute on your idea.
- Make sure to gather and bind key personnel and founders to the company.
- Offer them a fair incentive structure as compensation for lower salaries, long term commitment and engagement.
- Use external partners only for executing specific tasks limited in time. Do not outsource strategic responsibility for activities key to your business’ long term development (especially with regards to any sales, marketing, product development, HR or fundraising activities!).
✓ Entourage — Co-create your idea along with industry experts in your field, angels, advisors and other potential partners. They will have valuable feedback and know-how, as well as help you refine your offering before actually addressing the market. Their network, support and expertise will also add to your credibility when fundraising.
✓ Ear to the ground, eyes on the prize — Initial testing of your idea on the market is easier and cheaper than ever before. The closer you are to understanding your customer’s behavior and needs, the better. Start early on by testing the actual appetite for your product or service through social media channels, building a user or beta community, signups, pre-sales, signing partnerships or engaging in any other activities that can help gather metrics and validate your offering’s attractiveness. Market research can give you a useful hint and starting point for what marketing strategies to pursue, but do not over-rely on these sources of information! The reality is that your brand, offering and product or service differ significantly from anything else out there and no market research, however good it is, can substitute for actual traction. While testing, always try to get as close as you can to replicating how your sales process will actually look, without jeopardising your brand by delivering false promises to customers. In other words involve your customers early, but manage their expectations transparently.
✓ Don’t waste time, invest in your investors — Start prospecting potential investors early! I cannot stress this enough. Angels and early-stage VCs want to get to know YOU, the founders. As early stage active investors we need to build a lasting relationship and know you have what it takes to drive your startup. Working with imperfect data, new markets and sometimes frontier-innovation, being good judges of character is an essential tool in a seed investor’s toolbox. Seeing a business’ and entrepreneur’s evolution through time greatly reduces uncertainty and facilitates an investment decision. This doesn’t mean you have to rush out asking for huge amounts of cash right away. Be realistic in communicating your timeline, challenges and current stage of development, but do not hesitate to get in contact and present yourselves and your idea long before the actual fundraising starts.
✓ Have a story to tell — Build your own unique story, something that gives you purpose and drives your team internally, but also resonates in the ears of potential customers. Investors and customers alike are generally excellent at seeing through the bullshit, sensing how honest, engaged and genuine you are in building your business. Your vision transpires in everything you do, and the coherence of your pitch and business plan is no exception.
The task might seem daunting at first, but it is a gradual learning process and luckily almost everyone in the startup ecosystem will be willing to offer support, honest opinions and constructive feedback that help you grow along the way. Ultimately, there’s a huge premium awarded to those who want it the most and dedicate themselves through hard work, diligence and passion.
PS: Hope you enjoyed this first episode and hopefully found the insights useful. Don’t hesitate to come with feedback or draw from your own experiences on how you would approach seed financing!
Coming next, Episode 2 — Why I would need VC money and what to look for in an investor.
To learn more about who we are and how we try to contribute to early-stage innovation feel free to visit j12.co.