It’s a huge moment in a startup’s life: you shake hands with VC’s and seven figures hit your bank account. But when are you ready to raise a seed round?
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One of the biggest mistakes I see founders making is trying to raise money before they’re ready. They wind up beating their heads against the wall, simply because they’ve put the cart before the horse.
Here is how you know if you’re ready to raise a seed round:
1) Your product is launched. Believe it or not, companies try to raise seed rounds all the time without even having a product in market.
Sometimes they don’t have anything built at all!
If that’s you, your time would be much better spent finishing your product and launching it. Few people will invest pre-launch.
2) You have real customers and revenue. In addition to being launched, you want signs that you have a real, viable business.
And you can’t have a viable business without paying customers!
Most companies that successfully raise seed rounds have about $3,000 to $25,000 a month in revenue. Less than that, and you may not be ready to raise yet.
Meanwhile, when your annual revenue tops $1 million, you’re getting into Series A territory.
3) You’re growing fast. You want to be growing revenue at least 10% month over month in order to raise a seed round.
I generally look for the most explosive growers, who are scaling at 20% a month or more.
If your revenue is flat, raising capital is tough. People want to be on a rocket ship!
4) You have a strong team. You want around 4-6 people, at least half technical.
If you’re a solo founder or you don’t have anyone technical on the team, you’ll struggle to raise. You’ll also struggle to build a product and iterate on it.
Those two are not unrelated. 🙂
5) Your valuation is reasonable. Seed valuations are around $8-10 million post money these days.
Startups generally raise $1-2 million in their seed round.
6) You’re incorporated properly. I know, I know, I keep harping on this!
But make sure you’re a Delaware C Corp if you want to raise venture capital. More on why here.
I’ve had founders tell me that fundraising is the hardest thing they’ve ever done in their career. One of the biggest reasons for that is companies try to raise money before they’re ready.
You’re better off building your company up a bit first! Then, fundraising becomes way easier.
Show us a company with delighted customers and rapid growth, and we’ll be knocking each other down to get in!
What questions do you have about raising a seed round? Leave a comment at the bottom and let me know!
More on tech:
Why Your Startup Shouldn’t Be an LLC
How to Avoid Scams, Find Investors, and Lead Like the Best
The Startup Metrics That Make Investors Drool
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