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Everything I wish I had known about raising a seed round

207 points| mad | 3 years ago |mdwdotla.medium.com | reply

90 comments

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[+] davidhunter|3 years ago|reply
For anyone reading this advice. The number 1 reason why Matt’s fundraising process went as well as it did is because he has a world-class personal track record. This dwarfs all other reasons by a long way. Quite frankly Matt would have been able to raise with complete air (assuming that his cofounders have similar personal track records).

That’s not to take anything away from Matt. He’s clearly an accomplished individual and his advice is still sound. But he hasn’t included the glaringly obvious reason why he got funded - he was a professor in CS at Harvard and has had a string of prestigious roles in industry.

[+] ilrwbwrkhv|3 years ago|reply
Yes and he was also part of the boys club by knowing a bunch of VCs. Who you know is more important than what you are building in the modern game of venture capital.
[+] danr4|3 years ago|reply
Absolutely true. I'll add that THREE paragraphs start with "calling my VC friends", which factors in heavily on how "easy" it was to raise.
[+] spaceman_2020|3 years ago|reply
I was trying to gauge some interest for a seed round as well a few months back. For someone with my background, most investors want to see a prototype with some users, at the very least.

It’s actually worked out better for me since it’s made me realize that I don’t need that much funding that soon. Working on the prototype and getting some users has also given me far more clarity about the product and customer acquisition strategy.

[+] mdwelsh|3 years ago|reply
OP here. Thanks for the kind words. I certainly didn't feel like this was an easy raise, but then again it's the only time I've done this and my comparison points were other first-time founders who raised 2x what we did with less than we had done. Yes, these are all pretty senior, well-established folks, not kids straight out of college.

The main point of my article was the surprise around the extent of the VC network and the helpful interactions with them. Before going through this process, VC was a black box to me. Now, a lot less so.

A few folks below have pointed out that I must have had an extensive VC network to draw on. Not quite. I knew 3-4 VCs casually from having worked at a couple of other startups. None of them invested in us by the way. It certainly didn't hurt to get their advice. Now, of course, I have a rolodex full of dozens I could potentially call up at some point, which is useful. I can see how founders who have done it before likely find it a lot easier to get the ball (and the checks) rolling.

[+] bcantrill|3 years ago|reply
Absolutely agreed -- without knowing the specifics of the idea, this is the world's easiest raise. I'll add a few other tailwind factors here:

1. He didn't raise that much money. I know this sounds obscene (isn't $5M a lot of money?!), but to a VC, this is a small bet. In particular: this is a bet small enough that a single VC can just... do it -- they don't need the firm to buy in. (Or that buy-in is perfunctory.)

2. He's not a solo founder -- and his founders have startup experience. This might be a push, but if one of his co-founders was a previous startup founder and that company had a successful exit, that co-founder can raise on literally anything -- especially from the VC for whom they made money.

3. This sector is still hot. We don't know much about what he's making, but "it relies heavily on AI" (and, um, it's the TLD), which -- unlike web3 -- has remained (for the moment, anyway) white-hot.

4. The environment is (paradoxically!) great for this kind of startup. I know this sounds absurd because the environment has gotten worse (and he's certainly right that the valuation would have been higher a few months ago!), but because we are coming off of very frothy times, there is tons of dry powder out there: VC firms have raised massive funds, many of them targeting early stage (Seed/Series A). Those firms have to put that capital to use, and the ones that are queasiest about the macro prospects (for good reason!) want to go as early as they possibly can (i.e., first capital in) because that gives the macro factors the longest possible time to sort themselves out.

5. They have deal heat. In part because they have all of these other tailwinds, they got a additional huge tailwind in that multiple firms are vying for a deal. This is every entrepreneur's fantasy, and it results in the kind of behavior he sees: VCs absolutely tripping over themselves to be helpful. This is absolutely the exception, and highlights just how much all these other factors have lined up.

The title of this piece is what he wishes he had known, but it's not really clear what the true lessons are. That it's easier if you've actually built something? That your pitch deck gets around? Perhaps fixie.ai will just live a charmed life where everything is easy (and hey, more power to them), but if they are like most, the blog entry to read will be the one two to three years from now: "What I wish I had known about how hard a Series A is relative to a Seed."

[+] baxtr|3 years ago|reply
He is Ex-Google and Ex-Apple… so I guess it’s way easier for him to raise than for other people.
[+] clpm4j|3 years ago|reply
If there's an actual business, then the VCs will evaluate and choose whether to bet on that. If there's no business, then the VCs will evaluate the founders and choose whether to bet on them. A real (successful) business AND extremely impressive founders don't have to reach out to VCs because they're already beating a path towards them.
[+] spoonjim|3 years ago|reply
LOL exactly. A Harvard CS professor who had also worked in industry wouldn't even need to share the deck or idea to raise $5m. John Carmack just raised $20m for his AGI startup and doubt he had to share any plans or decks either, and guarantee you that Carmack was oversubscribed.
[+] smackeyacky|3 years ago|reply
That and "being able to call up a few VC friends of mine" also means he is a lot better connected than 99% of startup founders. This just reinforces the idea that raising VC is more about your background than it is about your ideas or ability to execute.
[+] zcombynator|3 years ago|reply
Growth is the most convincing metric. If you have growth, you will get funding. So how to get growth? Build something users want/like. How to know what they want/like? Talk to them. Build. Talk. Build. Talk.
[+] Kiro|3 years ago|reply
Matt was even portrayed in The Social Network.
[+] jiveturkey|3 years ago|reply
> number 1 reason [...] a world-class personal track record.

> That’s not to take anything away from Matt.

Why would that take anything away from Matt? That's tremendous.

Anyway I'd disagree. The number 1 factor is luck. I like this video https://www.youtube.com/watch?v=3LopI4YeC4I but there are plenty like it. Luck accumulates/aggregates/concentrates. I don't know if they cover it that way in that video.

[+] thecupisblue|3 years ago|reply
Looking at this as a founder thats currently raising a seed round (or pre-seed, tho as I understand, same position as OP) in Europe with an MVP.

Some parts ring true, as in VC's you never heard of contacting you on LinkedIn, sharing decks between their contacts and keeping in touch to build a relationship. The part about common pitch deck advice being geared towards live pitches especially - we haven't done a single pitch with a deck live. If it was a live meeting, they've already seen the deck or we've done a short pitch over zoom already. The "stand in a meeting room and pitch to VC's" thing is mostly a myth nowadays.

But a 5 million raise without even having a product just sounds insane. We've been offered 50-100k offers due to our team and product, but rarely anyone wants to invest more than that in a pre-revenue/pre-launch startup. And if they do, they would do it in tranches and by the time they would invest 500k we'd be giving them more than 20% equity.

The difference in valuations is just insane, with even VCs straight-up telling us that if we were raising in US we'd be offered 5-10x more than here.

Honestly, this whole ride makes me think I should just get a job at a US startup and use the cost of living difference to pay devs out of my own salary.

[+] ryanSrich|3 years ago|reply
This is 100% a symptom of not being in the US. Seed stage VC might as well not even exist in Europe. It’s so risk averse that it’s something else. It’s not VC.

In the US, you can raise money ($1m+) with just an idea if you have some combination of the following (often times just one of these is enough)…

- you have some traction in the form of pre-signed customers

- you have previously had startups success (multiple rounds, an exit, etc.)

- you are a master networker with a very large Twitter/LinkedIn following

- you are well known within your circle of expertise. Could be that you run a large newsletter, or podcast, or blog

- you know VCs personally, and are close enough with them that they’re willing to take on some risk with you

- you have a world class team of co-founders. Could be someone that built something open source, or lead some large branch of a FAANG company (I’ve seen former AWS employees raise on the simple fact that they worked for AWS)

- you went to a prestigious university like Harvard or Stanford. Many VCs attended these universities and are more willing to work with you in these cases (as much as people don’t want to believe this it’s true)

There are probably dozens of other scenarios and combinations of scenarios that would allow you to raise with just an idea. But it’s 100% possible (I’ve done it).

[+] moreira|3 years ago|reply
> Honestly, this whole ride makes me think I should just get a job at a US startup and use the cost of living difference to pay devs out of my own salary.

I know this was an off-hand remark that you're probably not thinking much about, but you're absolutely right, and it might be worth seriously considering it. Moving to the US is probably the single biggest improvement you can make to your career and opportunity options. You will never have as much opportunity in Europe as you will in the US, not in the tech world. You might be able to eke out some success in Europe, but it'll pale in comparison to what you could've achieved in the US.

[+] syedkarim|3 years ago|reply
>>with even VCs straight-up telling us that if we were raising in US we'd be offered 5-10x more than here

Serious question: Then why even remotely bother raising from European VCs? Doing so is clearly not in your best interest. Is it a matter of pride?

[+] CalRobert|3 years ago|reply
I'll ask - what's your startup? As an American living in Europe who really doesn't want to move back this is disheartening to say the least. Moving here did basically mean taking a sledgehammer to my career, admittedly.
[+] baxtr|3 years ago|reply
Two questions: have you considered raising in the US? It’s gotten easier with the pandemic

And: re new pitch decks. Is there a good template for the new type of pitches?

[+] tnolet|3 years ago|reply
This post is all true. One caveat (which is mentioned in the post): this person has multiple VC’s in his network and knows multiple founders who have raised on nothing but a deck.

Many, many, many future founders are not as lucky.

So, I guess rule -1 is: get to know VC’s, Angels and other previously funded founders.

[+] haasted|3 years ago|reply
Yeah, reading the sentence "Before starting the fundraising process, my first stop was to call up some VC friends of mine and ask them how to get things going" made me roll my eyes.

Rest of the article is interesting, though.

[+] pas|3 years ago|reply
Oh yeah, that Figma post all again. 0 to 5M in 3 months, and "how much prep do I need" ... ahaha.

Less "lucky" teams (eg. the other 99.9%) spend more time and end up with not even a million Schrute bucks.

Of course there's also a 0.00..1% that is really lucky, finds something at the right time, with the right framing/context.

All true, but somehow still very different.

[+] api|3 years ago|reply
A few things I've learned:

1. SAFEs are convenient if everyone is amenable, but be careful about having SAFEs sitting around too long or with different terms. They're like the Mogwai in the Gremlins films. They're kind and cuddly unless you feed them after midnight or get them wet.

2. Stay in touch with your angels even if they don't initiate. It'll help in tons of ways and they can interpret lack of contact as a sign that you're dying and that they shouldn't think about you anymore. This isn't good.

3. Be careful about any terms (e.g. in side letters) that might allow someone to stand in the way of a priced round in the future. Even if someone doesn't use them to play hardball for terms (they can), it might make things inconvenient and add dangerous delays.

4. Have a lawyer look things over BEFORE you get into priced round negotiations with VCs or you might end up dragging the process out and risking losing the deal because the lawyers find a problem that needs fixing.

5. If you use standard/canned documents, check (3).

Generally all this boils down to: keep terms simple and universal as much as possible, be communicative, and don't let things sit too long.

It's possible to do a priced round without a lead if you have SAFEs/notes sitting around too long. You can use standard documents to minimize legal. It may be necessary to clean up your cap table.

[+] elcomet|3 years ago|reply
> 1. SAFEs are convenient if everyone is amenable, but be careful about having SAFEs sitting around too long or with different terms. They're like the Mogwai in the Gremlins films. They're kind and cuddly unless you feed them after midnight or get them wet.

Your analogy is funny but you don't actually explain why SAFEs are dangerous, could you develop?

[+] manv1|3 years ago|reply
One interesting thing I learned from my previous startup is that when you're raising, you need to find investors that understand your market.

The more niche the market, the more difficult it'll be for you to find an investor. But when you find that investor the likelihood of them investing will be higher.

Why is that? Because if you have to educate your VC as to what you're doing, you've lost.

Let's say I'm building an AI that helps agencies set pricing for their ad inventory. Ideally I would want a VC that understands adtech, because they already understand the problems in that field (at some level) and how big it us.

I don't have to explain how much of a fucking pain in the ass it is to manage all the line items, creatives, placements, and pricing rules. Someone who wasn't in adtech would be like "google's GAM does that for you." Uh, not really.

A VC in adtech would be all "here's my money and a LOC."

And, the VC will be able to help you with some client introductions, so you can get more customers.

That said, my business co-founder couldn't sell water to a man in the desert, so we crashed and burned. Live and learn.

[+] ageitgey|3 years ago|reply
My experience is that timing is a huge element. VC groups have teams that specialize in certain areas (biotech, hospitality, crypto, whatever), but those specialties change over time as the business landscape changes.

If your pitch lands in the sweet spot of the kinds of things they are looking to fund right now (and you can back it up with experience/traction/team quality/whatever), you will have a relatively easy time raising money. If your idea is good but the timing isn't right for the VC market and they don't have people that understand your idea, you will have a very hard time raising money.

Likewise, different VCs are experts in different areas (even between big name firms). We met VCs who knew our market extremely well and had a very deep network in our specific niche. We also met VCs where we had to explain the basic premise of our market from zero. Do some research to find the VCs that work in the niche you work to have the best chance of not only raising money quickly, but getting access to a network of people who can actually be beneficial to your company.

[+] nakedrobot2|3 years ago|reply
Sorry but is this a f*ing satire article? Ex-google ex-apple guy calls up his VC friends to ask how to raise a $5M (!!!!) seed round?

For god's sake. It's something straight out of the Silicon Valley TV series.

[+] darkarmani|3 years ago|reply
He just needed to "neg" some VCs by crapping on them to get a better term sheet.
[+] jiveturkey|3 years ago|reply
it's just standard SEO fare. don't read too much into it.
[+] intelVISA|3 years ago|reply
Hard to tell with venture capital
[+] aliqot|3 years ago|reply
Might be a very unpopular opinion here, but the overall attitude I'm seeing IRL these days is favoring bootstrapping. I asked why and was told essentially suits provide a very specific and targeted value with limited application outside of those areas. It's no longer an accelerator for an exit, it's someone buying the position of your employer and the choices are no longer yours to make. I can see that.
[+] silverlake|3 years ago|reply
I raised a few $M with just 10 slides during the VC frenzy last year. I agree with the post but I view this from a social angle. The entire VC industry is driven by BullShit. VCs raise money from LPs (pensions, rich people) by claiming they have deal flow (they can get into the next big thing) and an “investing thesis” (some BS about the future, usually a bombastic spin on a current fad). VCs are finance bros that believe their own BS.

Your pitch should fit the current investing zeitgeist. If you pitch some oddball idea then you need to move your audience from 0 to 100% in 1 hr. If you pitch “AI generated metaverse for basketweaving” then the background hype has sold half your story. But also, VCs need other VCs to co-invest. They need to explain this investment to their LPs. It’s easier to pitch AI nonsense than something truly novel.

Every VC wants to see Matt’s pitch because he’s got a great resume. VCs don’t invest alone, so they will pass the deck around to their VC network. But it’s also sharing deal flow: I send you this, please send me the decks you’ve got.

VCs like to keep their options open. Even if they hate your idea, if A16Z invests then they’ll want to get back in. Or if you succeed then they’ll want to get into the next round. I had a VC offer a very low valuation. When I got 10X more elsewhere, they called back that they wanted in. The numbers are all BS: valuations, seed size, etc. Remember, their goal is to invest as cheaply as possible. Your goal is to sell as little of your company as possible.

Strangely, BS artists love other BS artists. Adam Neumann is a God-tier bullshit messiah with sociopathic self-confidence. It’s no wonder that he raised billions after the self-dealing disaster at WeWork. Matt is right: confidence is insanely important. Your company is a $1T opportunity that will change the course of humanity. (In fact, outrageous confidence is important everywhere. Humans are just really gullible fools.)

[+] 0898|3 years ago|reply
How much equity do you typically give up in a seed round?
[+] Sammyadems1|3 years ago|reply
The bigger question is how much equity do give up for 5mm when you have nothing but an idea?

I don't get it..

[+] axg11|3 years ago|reply
Typically 10-20% but the correct answer to this question is "it varies".
[+] wizwit999|3 years ago|reply
Asking your VCs if you should do YC is a funny conflict of interest, of course they're gonna say no.
[+] keeptrying|3 years ago|reply
He got funded because: He was a Prof CS at Harvard.

He did hit on the most imp point: be confident in your pitch.

Like 200% more confident than you are about anything.

I can’t overemphasize this. This is more important than anything else.

[+] indymike|3 years ago|reply
If you are in a flyover state, learn about venture tax credits and other startup investment incentives. You can often get investors a state tax credit that is up to 25% of the amount they invest. For angels, this is basically a 25% discount on their investment, and substantially reduces financial risk. Also, at least until you take in institutional money, being an LLC can unlock loss cary-forwards for your investors.
[+] uranium|3 years ago|reply
+1 this helps even if your angels are out of state. At least in Kansas, they can sell the tax credit to someone in-state for maybe 80% of its face value.
[+] gray_50|3 years ago|reply
I disagree with your approach on deciding if YC is worth it. I feel like VCs are particularly biased against YC and are incentivized to tell you it's not worth it. I think what you should have done is also seek out as many YC alumni as you can and ask what their opinion was. I guarantee you all of them would've said it's worth it.
[+] lucidlive|3 years ago|reply
This article is not useful for a typical entrepreneur. Most work for many years with little chance of raising capital. This guy makes it sound like all you need is some experience and a good idea. And now he’s writing a “all I learned” article about his past 3 months. Give me a break. (And no offence OP but I do feel it sounds out of touch)
[+] iovrthoughtthis|3 years ago|reply
"Before starting the fundraising process, my first stop was to call up some VC friends of mine and ask them how to get things going."

ah, so it is

[+] uptownfunk|3 years ago|reply
Seems like the author here had a much easier time than most people I know who have had to fund raise..

is it really that easy?

[+] nocoiner|3 years ago|reply
I felt like I wasted time reading this. It was someone with a terrific network talking about how amazing he is (yet with limited substantiation how that translated to success), with shitty DALL-E artwork interspersed between paragraphs. Yawn. Been there, seen that.
[+] blobbers|3 years ago|reply
I wish I knew more about the company, perhaps even a slide deck. It might make some of the ideas easier to connect with!

Anyone have a link to the deck?