Raising your seed round is a big milestone for a startup, as it gives you runway for 2 years to scale both your team and customers into a rapidly growing and sustainable business. Venture funds that lead rounds in the SF Bay Area will often write checks between $500k — $1.5M; so targeting a total round of $2M is common for entrepreneurs. Here is the process to raise a $2M seed round for your startup.
Friendly Feedback
Goal: $100 — $250k fundraising target.
What You Need: One liner, Introductory Paragraph (Team, Traction, Vision), First Iteration of the Deck.
The Plan: In the first 3–4 weeks of your fundraising process, get feedback on your pitch from existing investors and other trusted friendlies. If they like it, ask for money. Then pitch other small, quick-decision investors (Angels ~$25k — $100k, micro VCs ~$100k — $500k) you’ve previously met.
Tip: Next, you might offer a small amount of the round (10–25%) at a lower valuation to instantly create scarcity at the beginning of your fundraise: “We’re about to raise $1M at an $8M cap, but we reserving $100k at a $6M cap, for valuable investors like you. Once the $100k is gone, I promised the team we’d be more strict on dilution”.
Kickstart the Process
Goal: $250 — $500k fundraising target.
What You Need: Deck, Pitch in Excellent Condition, 3–5 Talking Points for Face-to-Face Conversations.
The Plan: After practicing your pitch ~50 times, you’re ready to blast the investor community; aiming for at least 45 leads, from a variety of investors: large VCs (~$4M — $10M), seed funds ~$500k — $3M), micro VCs and Angel Investors. Deprioritize Angel Consortiums or Crowdfunding at this stage, due to their longer lead time. If you’re in an accelerator program, your Demo Day is a perfect opportunity to generate the leads you need; if you don’t have Demo Day, expect to make at least 60 warm introduction requests to reach 45 leads.
Tip: You can generate investor lists from a variety of sources, such as Angellist, Crunchbase, Pitchbook, articles, blog posts and people from your past. I recommend trying to get a warm intro 3 different ways before attempting a cold email. Don’t use social media messaging, always send directly to the investor’s inbox.
6-Week Push
Goal: $500k — $1.5M fundraising target.
What You Need: 3 Fundraising Plans, Investor Lists.
The Plan: Aim for 15 meetings per week across the spectrum of investors. For each type of investor, be sure to provide a plan that matches up with their check size: e.g. $4M round for large VCs, $2M round for seed funds, $500k round for Angels and micro VCs. It’s okay to have different plans for different investors, especially during this early stage of your business. When asked by an investor, you can respond: “We don’t need capital at present but we have a plan to scale with $4M if we find the right partner” or “We initially set out to raise $500k but we’ve increased the target due to investor demand”.
Tip: For the larger check sizes (large VCs and seed funds), you need to test the interest level of the market, in order to be efficient with your time. Try to meet with at least 10 seed funds early on, and if less than 40% get back to you within 24 hours for a 2nd meeting, accept that this type of investor is not converting and you need to focus on smaller checks. The same goes for large VCs. Focus your outreach on the types of investors who are saying “Yes” the most, to build momentum.
Close a Lead
Goal: $2M fundraising target.
What You Need: Diligence Materials, Legal Counsel.
The Plan: If you’re pursuing the larger check sizes, then focus ⅔ of your time on those types of investors. However, be warned, the most common mistake at this stage is to solely focus on large VCs and seed funds, which risks no fundraise at all if a lead investor doesn’t materialize. Review your process weekly and if less than 40% of potential leads are getting back to you for 2nd and 3rd meetings, go back to focusing on smaller checks.
Tip: As you get beyond first meetings, most potential leads will request materials such as historical metrics, projections, and legal documents. Prepare as much of this as possible in advance and be ready to turn around requests within 24 hours to push the process forward. When a term sheet does arrive, make sure your lawyer and advisors review it for feedback immediately.
Raising $2M is not easy for most teams but it is possible, and it’s worth the effort as it gives your company runway to scale over the next 2 years. Make sure you start the process with a clear plan to maximize your fundraising chances.
This article is part of a series on Seed Fundraising.
1. When to Raise Money
2. How to Build a Deck
3. VCs vs. Seed Funds vs. Angels
4. How to Get a Meeting
5. How to Request an Introduction
6. How to Get Early Momentum
7. How to make a Good Pitch Great
8. The 5 Most Common Pitch Mistakes
9. Meeting Requirements
10. The Basics of Meetings
11. How to Handle an Angel Investor Meeting
12. Know these Numbers for your VC Meeting
13. 4 Investor Gotcha Questions
14. How to Follow-Up After an Investor Meeting
15. How to Close the Lead Investor
16. The 4 Stages of a VC Process
17. How to Raise a $2 Million Seed Round
18. Go from Investor YES to Cash in Hand
19. When Investors Say Yes but Mean No
20. When and When Not to Use an Investors Name
21. Stop Making These Common Fundraising Mistakes
22. How to Avoid Bad Terms that Kill Startups
23. What to do After Receiving a Term Sheet
24. Term Sheet Problems Part 1 — Money Talks
25. Term Sheet Problems Part 2 — Boardroom Blues
26. Term Sheet Problems Part 3 — Side Letters
27. 10 Traits of Successful Founders
Sterling Road invests in pre-seed B2B startups based in North America. Full process here: sterlingroad.com/process.
You can reach me here: ash@sterlingroad.com
Thanks to Kaego Rust for their help on this article.
Photo by Taras Zaluzhnyi
