PRE-SEED FUNDRAISING GUIDE: INTRO
10 Tips for First Time Founders Raising a Pre-Seed Round
Fundraising is one of the most difficult things you’ll do as a founder, especially if you’re a first-time founder and especially for your first raise.
Every company is different, but here are some of my biggest takeaways from raising a pre-seed round that included Micro VCs, Angels, and Family Offices. The vast majority was from people I knew only at arm's length before starting the raise. Friends and family accounted for less than 5% of the raise.
1. Build something worth investing in
It seems obvious, but it’s so often ignored. This is step one. You need to build something worth investing in and believe that it is worth investing in. The more traction you have, the easier your life will be. If you try to fundraise too early, you risk wasting valuable time that you could have spent building your product or making money.
If you’re unsure if your startup is worth investing in, read this article by Paul Graham.
2. Simple sells
People invest in things they understand. People understand simple things. Cut your deck in half. Then try to cut it in half again. Have a solid one-liner, a three-sentence elevator pitch (what you do, traction, and what you’re raising), and a deck with 10 slides or less. Move everything else to the appendix. If you can’t easily grok the deck in 90 seconds, shorten it.
Optimize for getting people excited, not details, and stats. If you get investors excited, you can always share details later. If they never get excited, there will be no later.
3. Go where founders go
Founders who believed in us were the number one source of investors for the raise. So go where founders go: events, podcast interviews, meetups, incubators, VC portfolio events, etc.
Corollary — listen to founders—especially founders who have raised money. Don’t discount founders’ advice because they aren’t investors. In reality, founders are some of the best people to help you find gaps in your logic, polish your pitch, and introduce you to investors.
4. Move to Silicon Valley (if you haven’t already)
You can raise outside of Silicon Valley, but I think it’s much easier here than in other places. There are simply many more investors and founders here than anywhere else. This density allows you to get more at-bats and increase your odds of serendipitous encounters.
Although it’s “expensive”, I would argue it’s actually much more expensive not to be here because valuations are lower outside Silicon Valley. Although some founders try to fly here, I think it is much better to move here if possible.
5. Focus on affinity groups
Early on, when the company is new, there isn’t much data to go off of other than — you. So digging into your affinity groups is a great way to find investors. College alumni, past companies, non-profits you were apart of, etc. For us, affinity groups combined with founder intros were very effective.
6. Ask for intros from your investors
Once you start raising money, ask your investors for intros to new investors soon after they invest. The new investor just invested, so their intros will carry a lot of weight. Another way to use investors who have already invested is to introduce them to prospective investors to help close investors on the fence.
7. Be patient, but also move as fast as you can
It took a full seven months and ~150 calls and meetings to close the round. Many of the calls and meetings were with founders or friends of investors, hoping that they would lead to intros.
I spent the first 30 days getting feedback and iterating the deck. I didn’t see significant progress (over $100k) until over four months in. But, once we did cross that threshold, the fundraising picked up. During this time, I spent about 90% of my time each day on fundraising.
8. Start a newsletter
Start a “Business Update” newsletter for potential investors, founders, and anyone else who may be interested in the business. Don’t be too shy; they can always unsubscribe.
Highlight what you’re doing, the progress that you’ve made, asks, etc. You shouldn’t share detailed financials like you would in an investor update. Send it on a monthly or quarterly basis to keep people engaged.
This is a great way to keep the many conversations you’re having up-to-date in a low-touch way. You can also track open rates and reach out to investors who engage with your emails but haven’t been responsive.
9. Track your progress and reflect weekly
Use Airtable or a sales tool like Streak to track your progress. Track qualified leads, committed, and money in the bank each week. Keep a record of it and be honest with yourself about what is working and what is not. Discuss your progress with another founder or advisor regularly for added accountability and an outside perspective.
I also found it helpful to write about the fundraising experience to help reflect on and improve my decision making. Writing is also a great way to develop quick but well-researched answers to frequently asked questions from investors. I found that variations of about 10 questions made up about 90% of the questions I received. Become an expert at answering these 10 questions or preempting them in the deck.
10. Approach certain sources of capital with caution
Grants, Non Pre-Seed VCs, Angel Groups, Accelerators, and Equity Crowdfunding often present themselves as good sources of capital for your first raise. However, they can be massive time sucks that result in little to no investment.
But, there are certain cases where these sources of capital do make sense. Here’s an article with more information on how to evaluate these sources of capital.
Raising your first round of funding is hard. You have the least amount of experience and certainty around your company’s performance. But, if you can get over that obstacle, you’ll have achieved a significant milestone.
Don’t believe the lie that good companies have an easy time raising money; investors are wrong all the time. Many great companies like Airbnb and Uber struggled to raise money early on but went on to be wildly successful.
Pre-Seed Fundraising Guide Continued → Part 1: Knowing When to Raise
This story is part of the Pre-Seed Fundraising Guide. Below are links to each article in the guide.💰 Intro: 10 Tips for Raising a Pre-Seed Round🕑 Part 1: When to Raise🤔 Part 2: How Much to Raise🔍 Part 3: How to Find Your First Investor📈 Part 4: How to Find More Investors❗ Part 5: Investors to Avoid📚 Resources: Essential Resources