Building Your Tech Startup to Raise Seed Funding, You Need These Things
It starts with a confident, thorough storytelling
Are you building a tech startup and want to raise Seed money? Or are you trying to land that initial angel investment and grant?
The process of building a solution and finding product/market fit while keeping afloat is difficult and stressful. Securing funding is vital for most.
But how do you find relevant investors, approach them, and deliver a compelling pitch? And what should you pitch after all? …
These are some of the questions that I’ll try to answer here.
First ask yourself: What kind of capital do I need?
You’re probably going straight after that VC money. After all, that’s why you clicked this article! But how sure are you really that VC capital is right for you? Let me just recap for you some additional funding options here because I want to make sure you make the right decisions for your company.
Generally speaking, there’s grants (free money), loans (good idea), crowdfunding (try to avoid), angel money (find those with relevant founder/industry experience) and VC capital (not for everyone). Many tech founders typically take on grants followed by angel money and subsequently VC equity, coupled with some loans (convertible notes) here and there.
Side note: Be aware that no startup is alike and that you definitely don’t need to adhere to the classical VC growth path if you don’t think that’s the overall best thing for your business! You can grow organically in many cases and do fine!
The amount of capital you should raise varies a lot depending on what you’re trying to build and how much control you want to give up. Are you building something DeepTech related then you’re most likely starting out with raising a large amount of capital to reach a proof of concept/technology stage.
Contrary, if you’re offering a rather simple tech solution, say a classical SaaS productivity tool, then you’ll probably aim for a smaller investment — just enough to be able to showcase proof of business model within a short period. However, later on you may need to raise those three digit funding rounds to beat competition, especially in a winner-takes-it-all market!
Most of the time, but obviously depending on what you’re trying to build and where you are geographically, tech founders raising Seed rounds go for anywhere between $1M-$5M to help build out their product roadmap (hire developers) and execute on the commercial roadmap (hire sales people).
Advice: It can be beneficial to raise a little more than you need as nothing goes as planned. It’s important to have a little margin of safety to be able to reach your milestones effectively so that you can raise your Series A without problems.
In all, it takes an octopus to manage the everyday activities of a tech startup. An octopus has two legs and six arms and that’s exactly what every founder wished they had. It’s not easy balancing sales, hiring, product development, board meetings and investor talks while keeping a good overview of the business, but that’s what’s required — and some find incredible joy in that too.
Why am I saying this? Because when you’re having investors talks it’s important that you come off as energetic and passionate, yet calm and grounded. And that requires an “I’m not beaten down” attitude.
We also want to see that you have a stellar overview of what’s going on in your business and where you’re heading. But that doesn’t mean you can’t take in advice from your prospective investors of where to go! It just means that you should have a rather detailed roadmap of your product/commercialization.
Finding your investors and approaching them
There’s multiple good ways to find investors for your startup, and here I’ll highlight two approaches for doing so: warm intros and cold canvas.
Warm introductions:
- Your network
- Investment banks
- Platforms
Cold introductions:
- Online databases
- Local organizations
- Application forms
Centre of your attention should be warm intros
I shouldn’t surprise you when I say warm introductions works best. Especially your ability to build up a network of private and professional investors (and founders too as they obviously also can connect you with investors) is the best way to secure funding for your startup now and down the road.
… Why? Because building a strong network enables you to establish relationships with potential investors before actually needing the money. And that can help you achieve mutual compatibility with your investors in a way that would have been very difficult or maybe impossible by cold calling them weeks or months prior to your financing round!
Securing alignment with the people you take onboard is crucial, and that includes investors just as much as employees. I’ve seen it too many times that founders go out and seek capital and swiftly decide to take on a few investors who they don’t know that well — perhaps because the business are in a financial distress and needs runway or because the founders neglects the importance of mutual compatibility with investors — and then one day not too far out the founder-investor collaboration starts to tear apart.
This is to be avoided. And frankly, since the average investor relationship is longer than the average US marriage you would want to make sure that you’re are working with the right investors from the outset!
Not only can disharmony in the investor-founder relationship cause current investors to not participate in a follow-on round, it can (will) also make it more difficult for you to raise capital from new investors. And since running out of cash/failing to raise new capital is the number one reason for startups failing, the importance of taking in the right investors is very high.
So, focus on building your network and maintaining it… In a minute I’ll show you how to find your prospective investors.
Investment banks and platforms can also be favorable options to you, especially if you don’t yet have a strong network of investors. Investment banks can help you connect with investors in their network and they will also build the pitch deck for you, facilitate the introductions, etc.
However, I’ve seen dozens of pitch decks made by bankers and they love making them long and complicated with data filling up every inch of the slide… This is not what you want to see as an investor; rather, you would want to “feel” the people behind it, their struggles, successes and vision.
And what’s even worse, some bankers/brokers sometimes facilitate most of the introductory meeting between the founders and prospective investors, and that’s simply very uninspiring and demotivating from the investors’ side. Again, we want to hear you the founders talk and tell, not the bankers.
Therefore, if you use investment bankers/brokers then don’t let them control the process too much. And insist on a streamlined pitch deck.
Coming back to platforms. They can be a great place for you to start uploading your material, test the waters and receive interest/feedback. I wanted to categorize them as warm intros because essentially it will be investors reaching out to you, either investing for equity, a revenue share or perhaps a free product. It can be an “easy” way to start out.
For platforms, what I want to emphasize is that you need to think twice however; most likely you won’t get qualified investors onboard that can help you build your business and scale it towards a Series A and beyond.
Enough talk about warm introductions. Let’s now turn to securing cold intros as they are instrumental in building up your network of prospective investors!
Mastering cold introductions is a skill like no other
I’ve once heard someone say that if you master sales you master the universe. Exaggeration promotes understanding — but there’s also some truth to it.
If you can sell anything, you can also get anything.
Therefore, if you are about to build your dream team, then make sure at least one of your co-founders can sell, sell, sell.
Advice: For great insights into sales and how to get your clients to buy the product from you rather than you selling it to them, I propose a read on SPIN Selling.
In the process of cold calling prospective investors I propose to (i) search on local databases such as LinkedIn, Crunchbase and AngelList, (ii) seek out local network organizations, including those of business angels and startups, and finally (iii) formally apply for grants and loans where it makes sense.
On LinkedIn, you can filter your search and quite easily find the most active business angels (and VCs) in your geographical region.
And on Crunchbase, you can download large lists with investor names, contact information, their investment profiles, etc.
Advice: The best time to reach out to investors is when you don’t need the money. Reach out way in advance and tell them that you don’t seek capital now but want to expand your network and build relationships with potential investors.
Cold calling investors should be a priority for you and your team on a monthly basis just as you would want to prioritize cold calling customers and partners.
Getting the money is one thing, but getting money and knowhow, connections and domain expertise on top is even better for you. And that takes effort because most investors do not offer that, even though they say they do, so you’ll have to kiss a lot of frogs in the process.
In all, reach out to prospective investors and sell yourself, establish a good relationship, maintain it with quarterly reporting or catch up calls, and then warm up the investors as you’re approaching your upcoming funding round.
The Pitch: Tell it like there’s no tomorrow!
A good story delivered in a firm and confident voice awakes investors! There’s nothing more grueling than listening to a pitch session with an unstructured and imprecise storytelling where the investor is left sitting with guesswork.
Many founders forget to introduce their idea and solution in simple terms initially when they present themselves. And I can understand why; you’ve spent months or years building something that YOU understand 100%, and in your eager to present you assume or forget about investors’ knowledge.
Although your prospective investors have seen a lot of solution types (especially if they’re VCs), it is not always straightforward to understand exactly what you’re offering and how it differentiates from competition.
Advice: Ideally you would want to emphasize the problem you are trying to solve, how you can solve it (what’s your solution), why there’s a need for your solution now, and how you can solve it better than anyone else. All this should be told to the investor in the very beginning of your meeting. Make sure they get it.
Oftentimes it is beneficial for you to have two pitch decks. One shorter (8–12 slides) that functions as a teaser when sending out your email or if you only got a 20 min meeting, and one longer (10–20 slides) that contains more details and is better suited for 40–60 min meetings.
The short pitch deck that I often propose looks like this:
- Front page slide (names, contact info, etc)
- Problem slide (what are you solving?)
- Solution slide (what are you doing, why now?)
- Market size/growth (TAM/SAM/SOM + CAGRs)
- Business model/value propositions (recurring, please!)
- Traction slide (revenue, growth, profits, customers, etc)
- Competition/unique selling points/key differentiators
- Team slide (including advisors and the board)
- Key risks (How will you mitigate them?)
- Ask slide (what are you seeking, what’s your use of proceeds?)
- End page slide (names, contact info, etc)
For longer pitch decks you can make deep dive slides for each of the above categories. Sometimes it’s beneficial to dig into your competition, for example, and thoroughly compare your solution against competitors’. Or elaborate on your product roadmap and commercialization plans.
Conclusion
If you’re building a tech startup and are in the need of capital, then (i) think about which type of capital you need, (ii) build up a strong network of investors and founders, (iii) maintain your network relations with updates and catch up calls, and (iv) build a great pitch deck (see above) that you present with passion, eager and positivity, yet in a calm and confident voice.
Present your startup in a slow-to-medium paste and make sure to pause once in a while and ask investors if they got any questions. Optimally, your pitch session is more a talk or discussion than a one-way presentation.
Disclaimer: The views expressed in this article are non-political, non-commercial, and solely my own. The content here is for informational purposes only and shall not be understood or construed as financial advice.
About the Author: Joachim Schelde is an Investment Associate at Scale Capital, a danish venture fund investing €1–3M in Nordic B2B tech startups at Seed/Series A and helping them win in the US.
