Since there’s no formula for how to do this and navigating this process can be overwhelming for budding entrepreneurs, we spoke to two seasoned VCs about some key things a fledgling entrepreneur needs to know when raising seed financing from a venture capital firm.
Consider Timing and the Amount
A common question among new founders is: When is a good time to raise a seed round? When a startup thinks they’re “onto something”, the time could be ripe to examine options for seed financing, said Florian Heinemann, founding partner of Project A Ventures, an early-stage investor and VC focusing on e-commerce, marketplaces and SaaS. Typically though, the goal should be to raise enough to hit the next defined milestone with a bit of a buffer. As for the amount, seed capital can range from €100,000 to €1 million. “I always find it difficult to tell anyone there’s an absolute amount that is correct”, explained Gabriel Matuschka, partner at Fly Ventures, a VC firm making seed and pre-Series A investments in the areas of machine learning, marketplaces and SaaS across Europe. “It’s a case-by-case and company-by-company thing. It really depends on the type of company and what you can do.”
Be Clear and Concise About Your Story
Being able to describe your idea and talk about your team in a compelling manner is more important than showing metrics at this stage. “Often, this involves demonstrating first commercial traction, some understanding of profitability on a per customer level, and first scaling of the organization. Ideally the money should give them a runway of 15-18 months.” Founders should know how to talk about their team, their product, the market, their story, their customers, the pace of product development, etc. in a very easy-to-understand and concise way.
Educate Yourself on the Process
For entrepreneurs, the sheer amount of information at our fingertips can be both a blessing and a curse. When looking for resources on raising seed capital, Matuschka suggested looking at Seedsummit to get a grasp of core terms in venture, as well as getting an idea of the kinds of term sheets people use for UK or German deals. Heinemann advised that entrepreneurs should educate themselves on the concept of vesting, cliff and liquidation preferences. When in doubt, consult experts.
Don’t Forget About Speed
It’s not uncommon that startups go through a number of rounds of funding in their lifetime, so try to be as efficient as you can when going through this phase.
Find the Right Entrepreneur-Investor Fit
Regardless of how many investors participate in the seed round, it’s crucial to think about the reputation of your investors and whether they’re a good fit for your vision.
