6 Things No One Tells You About Raising a Funding Round with Tapestry VC, Cocoa, Frontline Ventures, and Cavalry Ventures (Video)
One of the most exciting and terrifying things a SaaS founder can do is raise seed money. But bringing in an investor comes with new responsibilities, and navigating the world of fundraising can seem complex.
In this SaaStr Europa 2022 session, David Kelly (General Partner of Tapestry) interviews a group of highly experienced investors, including Zoe Chambers (Frontline Ventures), Carmen Alfonso Rico (Cocoa) and Rouven Dresselhaus (Calvary Ventures).
#1: Why seed funding anyway?
Before you start planning your seed round or looking for an angel investor, you need to pause and decide if you really want or need a seed investor. Dresselhaus says, “I think it’s really important to understand that not all founding teams should accept seed funding, because there are different models, there are also different expectations from investors, for example, for founders. He insists, “Really make sure there’s added value for that equity you’re giving away alongside cash.”
Alfonso Rico agrees, saying success can be found with or without an investor. Yet once you’ve chosen to go ahead with funding, you have to accept full commitment: “You have to think of venture capital as a highway…if you’re on it, you can’t go down it.” go out and you have to drive really fast, and there’s a set of expectations that go with that.
Chambers believes founders should also understand that alignment and cohesive vision should be a priority for both investor and founder: “Are you ready for what this journey in my mind is going to look like, which means building something from very high growing at a rate that is actually quite relentless… it’s almost a mindset recording.
#2 When to raise a seed round?
The timing is different for everyone, but you’ll need to take the time to show the metrics and tell the story that VCs want to see. Do you understand the potential of your product? Do you understand the market well and how does your business fit in? Are you sure you need seed funding and do you have a plan for where to spend the money?
To raise funds, you need to hone your de-risking strategy and have a solid plan that influences investors, especially in today’s uncertain market.
#3 Can I increase remotely?
In a post-pandemic world, the rules have completely changed, even when it comes to investing. You no longer have to fly to London or San Francisco or establish your business in a particular location. Remote meetings are completely acceptable.
However, it’s never a bad idea to visit traditional tech hubs to learn a bit and network. But do not forget that it is not necessary to change the place. As Alfonso Rico says, “If the intrinsic value of what you create is exciting, people will go anywhere to fund you.”
#4 How should I structure my cap table?
For a seed round, founders should focus on finding experienced and connected investors, preferably in a relevant space. You want to make sure your business counts for VC, and one way to do that is to look at your ticket size. How much of the fund is dedicated to your business?
Still, it takes a nuanced approach when you think about it. Closed-end funds typically require about four years of investment and then they can deploy reserves. And then there is the stage where investors must also be accountable to their investors. Understanding the VC side more clearly can help you get a fuller picture of where your business stands with them.
#5 How do you build momentum when fundraising?
Founders might think of hacking their fundraising to build momentum for their business, but how can you actually do that?
One tip is to think of your fundraising efforts as a B2B sales funnel. With investors, the movement can be very similar, but with different tools. The best case scenario is to create a strong story to sell your potential, network, meet insiders, and jump into a meeting. When fundraising, you must operate with total and ruthless focus until you achieve the desired results.
#6 What does the seed market really look like right now?
It’s a time of constant flux in the world and in the market, and due to the uncertainty, founders hoping to raise seed must raise the bar. Transactions are still ongoing, but expectations are higher and happening at a slower speed, so founders need to be on top of their game.
The good news is that SaaS isn’t going away anytime soon, as digitalization becomes more entrenched in our society. So if you have the next great product, don’t be afraid to go there!
Key points to remember:
- Don’t just go through the steps –– do some soul-searching and decide if taking on investors is right for your business.
- You can meet investors and raise funds remotely, but it never hurts to visit the network in person.
- Treat your fundraising like a B2B sales funnel.
- Deals are still in the works, but founders must be prepared to uphold a higher standard to stand out.
Posted on August 26, 2022