Everything I Wish I Had Known About Raising a Seed Round

🌈 Abstract

The article discusses the author's experience as a first-time founder raising a seed round for their startup, Fixie.ai. It covers various insights and lessons learned throughout the fundraising process, including:

🙋 Q&A

[01] How much prep work is needed before starting the fundraising process?

• The amount of prep work needed depends on the founding team and the type of company being started.
• For a strong, senior founding team, a compelling idea with a plausible story about turning it into a viable company may be sufficient.
• For more junior founders, some actual work (e.g., prototype, demo, or early customer traction) may be necessary before trying to raise a seed round.
• The fundraising climate can also impact the required prep work, as the author found that raising earlier would have resulted in more funding at a higher valuation.

[02] Should the founder consider joining Y Combinator?

• The author's VC friends advised that for a founding team with substantial startup experience, the author would likely not gain much from the Y Combinator experience.
• They also believed the author would have no problem raising a seed round without doing Y Combinator.
• Ultimately, the author decided to turn down Y Combinator, as they were able to raise the desired seed funding without it.

[03] How helpful are VCs in the fundraising process?

• The author was surprised by how quickly their network grew by connecting with VCs, who were often helpful in making introductions to other investors and providing advice.
• VCs are motivated to build relationships with founders, as it gives them a "free trial" in case the founder ends up taking their money.
• VCs also have to be proactive in finding good deals, so they are willing to meet with founders even if they are unsure about the viability of the idea.

[04] What are the potential downsides of working with VCs?

• VCs may act very enthusiastic and engaged during meetings, but then decline to fund the company.
• This can happen for reasons like the company being "too early" or the VC not believing the idea will become a large company.
• VCs have different risk tolerances, investment philosophies, and preferences for the types of founders they want to work with.

[05] How should the founder approach their pitch?

• VCs tend to prefer a confident pitch that demonstrates conviction in the direction, technology, and team.
• The author found that being too understated or offering too many caveats can be interpreted as a lack of confidence or competence.
• The author had to adjust their pitch style to be more ambitious and "cocky" to better match the expectations of Bay Area VCs.

[06] What should the founder consider when creating the pitch deck?

• The pitch deck needs to be a stand-alone document that can be consumed without the founder present, as it will likely be shared with other investors.
• The deck should have enough details to answer key questions, even if the founder is not there to explain it.
• It should also have enough substance to excite VCs before they have a chance to chat with the founder.

[07] How knowledgeable are VCs about the founder's industry and technology?

• The author was surprised by how many times they had to educate potential investors on things the author assumed they would already know.
• VCs may project a strong command of their areas of interest, but their opinions are not always well-informed, especially for those without engineering backgrounds.
• This can make it challenging for founders to connect the dots for investors, as they may not have a deep understanding of the company's technology and product landscape.