How to raise seed funding in 2018?
‘Vintage’ in the Venture Capital Industry is the year in which, as a fund you start investing in startups or with respect to start-ups, it pertains to the year in which the company starts looking for external capital. It could be fair to say, that no particular fund or startup can influence the funding dynamics for any particular year. But the ‘Vintage’ does have a profound impact on both the parties.
Here’s what happened in the Indian Venture Capital Industry —
2015— “Boom year” with capital flowing freely across stages and sectors — but more specifically, over 800 companies got seed funded (first round of external capital)
2016 — Exuberance continues in the seed stage, as individual investors (angels) become more prolific — over 900 companies got seed funded, the funding started slowing down in second half of 2016
2017 — The music stops; startups focused more on getting the follow-on funding — Angel Investors and funds focused more on keeping their existing investments alive; only ~590 companies get seed funded, however, Series A & B rounds stayed flat as compared to the previous year
2018 is beginning to be very interesting and, here’s why —
1) Chinese funds have upped their ante in India — Startups across stages, are getting investments from Chinese funds & more established companies in China (ShunWei, Alibaba, Tencent, Toutiao etc)
2) Imminent ‘decacorn’ exit of Flipkart will give the tech venture space a much needed validation
3) A number of ‘Micro-VCs’ which are looking to invest in seed rounds have been established across the country
We believe that 2018 & ‘19 could turn out to be great Vintages for early stage startups. That doesn’t necessarily mean capital would flow as easily as it did in 2015 & 16; but that’s a good thing! Institutional seed rounds are generally thoughtful and more focused towards driving the young companies towards meaningful outcomes (in terms of operations as well as preparing for for the next round of capital).
I’m a part of WEH Ventures, and we invest in early stage companies. While each fund has it’s unique way of functioning and different approaches to arriving at an Investment decision, these are some broad pointers that could help entrepreneurs looking to raise seed capital —
- Reaching out — LinkedIn works well for a cold-reach out (adding a note while sending a request, helps!) — once connected, do not wait too long to take the conversation ahead. Or if you’re writing an email, keep in mind that bulk emails rarely entice any interest. It is true that Investment teams get a lot of proposals on a weekly basis — so some ingenuity can go a long way! Like this one here,
2. Founding Team — While there is no rule of thumb regarding the number of founders, it is quite important that the founding team is capable of leading the core facets of the business for the near to medium term.
3. Market Sizing — Yes, market size matters for all VCs; but, doing a top down approach, by taking India’s vibrant population to arrive at a $billion-ish number, does disservice to your pitch; a more credible starting point could be insights that you have on your existing customer base.
4. Operational Metrics — The kind of metrics that is tracked within the organisation, reflects a lot on the founders’ clarity of thought; which matters a lot, as VCs are essentially betting on the founders’ ability to steer the company through uncertain times.
5. Traction — If it’s amazing, display it up-front!
6. Competition — Very rarely, does a venture not have any competition; so, not talking about competition shows lack of self -awareness. Also, the reasoning, “it’s a big market and hence a lot of players can co-exist” doesn’t help at most times.
7. First Impressions matter a lot — In our experience, we’ve made up our mind in most cases within a couple of meetings- the rest is usually to just give us a push to the finish line.
8. Articulation — No matter how amazing the opportunity or traction is, if you can’t explain the basic premise of the venture within 10 minutes, it becomes quite a hard uphill climb from there.
9. When to reach out? — Most early stage Institutional funds look for some basic version of the product and early traction (doesn’t necessarily have to be in terms of revenue). That said, if an Investor has a strong thesis for investing in a particular sector, they might be ready to back the right entrepreneur even before development of the product.
For us, at WEH Ventures, it’s all about, “Founder meets Opportunity” — we are sector agnostic and look for insightful founders who are addressing large opportunities. All our investments thus far, has been driven by our love for the product.
We believe that the current market is at equilibrium - neither slow nor exuberant. Therefore, entrepreneurs with a good product will get funded sooner rather than later.
In the 2017 global market capitalisation leader board — top 5 and, 8 of the top 20 were tech companies. We expect to see a number of Indian companies form a part of this list in the next 5 to 10 years!
If you’re working on an interesting idea, feel free to reach out to me at firstname.lastname@example.org.