How To Raise A Seed Round

Today we’re going to be talking about How to Raise a Seed Round. Basically, what we’re going to be discussing is what is a seed round? What are the different expectations, and some of the different things that founders are going to need in place in order to get that money early-on?

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The first part is to understand what a seed round is. A seed round of financing is ultimately that first trench of money that the founder or the company is bringing in from early-stage investors and it ends up being the first round of financing that you raise as a founder.

The goal of the seed round is to raise enough money so that you can build the infrastructure and the key initial pillars of the business in order to scale up. Typically, the amounts of money that you’re going to be raising depends on your location. For example, on the East Coast or on the West Coast of the U.S., I’m seeing seed rounds that go all the way up to 2 million. But, obviously, if you’re outside of the U.S. and out of those startup hubs, probably you’re going to look at less money. Again, it ranges from as little as 100,000 all the way up to 2 million, as I was saying.

The next part of understanding how to raise a seed round of financing is to get what are going to be the expectations that the investor is going to have when you go out there and when you try to raise this money. Essentially, those expectations are going to be that you have already an 18-to-24-month roadmap, that you have a founding team in place, that you have an idea on how you’re going to be building and scaling your platform, and then also that you figured out how you’re going to get to your customers and who your customers are.

The next thing to understand is why a seed round is so important. Just like other really great experts, like super-successful founders like, for example, Reid Hoffman, who built LinkedIn and now is a venture capitalist, they always say that the way that you raise money today is going to impact the way that you can raise money tomorrow.

In terms of terms, you want to make sure that you have the right terms. Once you already have an investor that is ready to come in and to make an investment or perhaps that wants to negotiate with you what those terms are going to look like, you really want to be clear as to how you’re going to be getting that money in. You can either do it via equity, or you can do it via debt in the form of convertible notes or safe notes.

Typically, what I see is that in a seed round, you want to maybe delay a little bit more, especially if you’re just dealing with individuals, putting a price tag on the business, maybe you delay that to the Series A. A good way to do that is via convertible notes, where people are giving you the money, and you are promising them that those notes are going to convert into equity once you have a sophisticated investor that is coming in and leaving your round on the Series A, where you literally have venture capital firms coming in and establishing those terms.

The next thing is understanding who you’re going to be pitching at a seed stage. When you’re at the seed-financing cycle, you’re going to be either going after the angels, you’re going to go after angel groups, or you’re going to go after venture capital firms that are investing at an early stage.

You’re going to get founders of portfolio companies that have received an investment in the last 6 to 12 months, and ultimately, you use those founders to get the foot in. This is all about getting someone that has that layer of social proof to get you into the circle of trust, to reduce the amount of time from the first touchpoint to money in the bank.

Again, just go for advice. As the saying goes, you go for money, you get advice, and you go for advice, and you get money twice. So, just go for advice, and then when you have, let’s say out of 50 investors that you’re engaging with, maybe one says, “I think this is interesting. Perhaps I’d like to become a lead.” Then, at that point, you go to the other 49 investors and say, “We just started a round. It’s going to close by x-date. We’d love to have you in. Let me know if it makes sense to share the offering documents with you.”

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