How to raise your Seed or Series A in the mid-pandemic U.S.

If you’re currently thinking of raising your Seed or Series A for your consumer tech startup, we have a treat for you – a recap of our ‘Fundraising for Founders’ session hosted by Pete Flint, General Partner, NFX in conversation with Amber Atherton, Founder & CEO, Zyper, Eliot O’Connor, Founder & CEO, Frontier and Rahul Vohra, Founder and CEO, Superhuman. And GBx has joined the audio party – this session was hosted on Clubhouse!

So, what is the current environment for raising a Seed or Series A round?

  • You don’t have to be in San Francisco anymore to raise money. That will be a boost for European Founders
  • We’re seeing more, smaller checks going into early rounds. Especially from founders keen to support other founders’ early rounds
  • There’s activity from US funds taking an interest in the EU, which it’s expected to last post-pandemic
  • Contrary to what you may expect, deals are still happening in a matter of days or sometimes – hours

How do you choose your investors?

  • Keep in mind you are going to be in business together for three, five, 10+ years so approach carefully and thoughtfully
  • Do your due diligence: speak to founders in their portfolio who haven’t been successful ask what their experience of the investor was
  • Prioritize what’s important for your go-to-market strategy. For instance, a US investor who can support US market with customer introductions
  • If you’re looking for support and engagement, you may be tempted to go for bigger checks, less investors, but it’s important to strike a balance and diversify your portfolio
  • Watch out for that proximity bias, any personal relationships

Make up of the round?

  • This largely depends on the dynamic of the seed investor. If your seed investor business model requires a certain amount of ownership and if they normally take a board seat
  • Founders may try to avoid investors taking a board seat. This is a mistake! You want them to be world class and take a board seat
  • Ask yourselves: 
    • What $ amount would they require to invest and take a  board seat?
    • How much dilution are you comfortable with? Lead VCs are typically looking for 5-20% ownership
    • What level of angel check makes sense for you to take their money and for your angels to feel like they have skin in the game

What do you look for in an investor and what do you avoid?

  • Understand the investors’ fund Limited Partners (LP) base. For instance, who are their investors and how are they structured. What is their decision making process? How fast? What ownership levels do they need at seed? And for follow on?
  • Which lead investor do you want to work with at a fund? Ideally, you’d want to work with the most influential or senior person at the firm, if possible a Partner not Principal
  • Here are some dos and don’ts
    • Yes: a General Partner (GP) who is early to mid stage career
    • Maybe: a GP who is recent joiner and may be giddy to make investments. There is a high churn rate in this career stage
    • Maybe not: a GP who has been there a long time and is approaching retirement. If other partners don’t want their investments, you will need to find a replacement investor to but them out
  • Always listen to your intuition. You may enjoy working with former founders and CEOs who can sympathize with the challenges you’re facing
  • Focus on the person, not just the brand name. Assess whether that person has operating principles which can make them successful as an investor and specifically as a lead investor
  • And watch out for funds which can write seed checks but don’t have the operating principles to back it up
  • Do your due diligence – talk to six to eight founders who have been invested in previously. How good are their investors? How has their time/commitment grown or diminished? How supportive were they when things didn’t go to plan?

How do you get investors to commit to your round?

  • Compact fundraising conversations into a short period of time. Founders tend to make a mistake of having meetings with a fund over multiple weeks and dragging out the process
  • Start two weeks before formally kicking off meetings and schedule the 20+ first meetings in the first week, ask for second meetings in the second week
  • Drive the agenda, control the conversation, create competition. This contributes to building magical momentum and FOMO
  • Ask in the meetings: what is your process? Get an understanding of how the fund works. Get it done fast and get back to running the company. It can be an endless grind. 
  • Speak to other founders while you are in your fundraising process to share ideas, commiserate or celebrate with them along the way 

How do you demonstrate traction for pre-seed or seed?

  • Don’t do an equity round if you can avoid it. Do a safe or friends and family round to get you off the ground. Then build a prototype, create landing page, buy your domain names and find a co-founder
  • Go back to the market, raise the valuation for the next stage. Raise more from increasingly sophisticated investors
  • Find ways to show momentum other than a number of users and revenue

What do you look for as an investor?

  • They know how to make something people want and understand your idea and market
  • They know how to make people know they want it, how to take things to market
  • They demonstrate exceptionally high levels of grit: passion and perseverance