Raising funding is a hard and difficult process. We work a lot with startups, often we get the question; how do you raise a seed investment? From our experience, we would like to share with you a couple of insights into how the process of raising a seed round works and things you need to keep in mind.
What’s your skin in the game?
There are lot of aspiring entrepreneurs who want to take the ‘safe’ route. But, if you are not willing to take any risks to realize your startup dream, you shouldn’t expect others to take on that risk. If you are looking at your startup as a side project, then there’s very little chance anyone will trust you with their investment.
When is the right time for an investment?
We’ve seen a lot of entrepreneurs reaching out to angel investors as soon as they get an idea. While there are some investors who might invest just on your idea and your background, majority of them would want to see lot more than that. Researching, building a prototype, putting the founding team together and getting first few users/customers is the standard process that increases your probability of raising funds.
How much investment should I raise and at what valuation?
A lot of entrepreneurs find it hard to answer this question. But you need to be super clear on the amount you are looking to raise based on the following:
1) How much money do you need to get to your next goal. Such as profitability, building a team, developing a product or scaling up. You need to have some level of projections to come up with this number.
2) If you your plan is strong enough, investors may want to invest more than you need. It can be tempting to get as much money as there is on offer, but this can ruin further rounds. Do not dilute so much that you have very little equity left for future investors.
With a seed round the valuation is quite subjective and depends on the negotiations with your investors. Giving up a power of +/- 15% for € 100K- € 200K is very normal.
How do I get the right investors with the right expectations?
Many entrepreneurs become desperate during the search for financing and end up with investors who do not understand their business or have any added value. This is often an important reason why startups fail. Because of their different views, they can threaten the essence of your startup. Remember, the investors are not just a resource for money, but also for knowledge and their network. So selecting the right investor can mean a lot for the success of your startup!