[HN Gopher] Ask HN: How to raise a seed round in a down market?
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Ask HN: How to raise a seed round in a down market?
The market is difficult and many investors put new deals on hold
while taking care of their existing portfolio companies. Aside from
preparing for strong growth and low burn, what other suggestions do
you have for young startups?
Author : hubraumhugo
Score : 55 points
Date : 2022-06-23 12:13 UTC (1 days ago)
| clpm4j wrote:
| Either you have a product that customers clearly love and are
| willing to spend money on, or you yourself (and your team) are
| very impressive people in some way. The investor is ideally
| betting on both an impressive company && an impressive team, but
| at the very least one of those needs to be true to have a shot.
| srvmshr wrote:
| Sadly, in a downturn VCs seem to back their connections (most
| likely their alma maters) when making choices. It is a bit
| obvious if you think: They choose ideas which have been pitched
| by people within 2-3 degrees of connection if they went to
| same/similar known schools. Although it doesn't change quality or
| success chances, the proximity provides some degree of personal
| vetting.
|
| In my limited observation, a good number of small startups were
| still getting their Series B in early 2010, when most folks were
| still busy laying off or freezing hires. Those did have either a
| good university brand backing, a serial entrepreneur or both.
| bredren wrote:
| Be or have a co-founder with:
|
| - an affiliation with an ivy league school
|
| - a prior notable technology or business contribution, such as
| authoring a protocol (or more recently an open source project)
|
| - some unusual circumstance such as family relationships that
| causes VC partners to care more about them than a random person
|
| - be obviously independently wealthy already
|
| - have been a founder or high level employee involved in a very
| successful vc-backed startup exit
|
| One or a combination of these will ease getting an initial
| investor and closing a seed round.
| ragnarok451 wrote:
| the advice nobody wants to hear but is actually true. ofc you
| also need to be highly competent yourself, but that is table
| stakes
| whatshisface wrote:
| Being competent is not table stakes, how can they tell who is
| competent?
| bredren wrote:
| Some of the points I listed do require some level of
| competence. (Such as authoring a popular OS project, or not
| losing existing wealth through poor judgement)
|
| However, it does not necessarily mean the person has
| competence to be a good _founder_.
| rexreed wrote:
| Long story short, nothing to do with your actual business or
| business model or innovative technology or hand-wavy
| "disruption" or large addressable market size or traction or
| any of the other things that VCs tell the plebs matter, when in
| reality they only matter if you don't have anything more
| valuable like the above. This is how companies raise ludicrous
| amounts of money without ever finding product-market fit,
| because of the Ivy league / family / prior possibly irrelevant
| past history matters more.
| spoonjim wrote:
| > nothing to do with your actual business or business model
| or innovative technology or hand-wavy "disruption" or large
| addressable market size or traction
|
| I would take out "traction" from this. If a company has
| strong traction (that looks sustainable) it will outweigh
| everything else.
| peyton wrote:
| It's a seed round.
| kingforaday wrote:
| Another answer which you might not like: instead of focusing on
| raising, build a strong product offering or major feature
| enhancement that fills a hole for another established company
| looking to jump a few spots on Gartner's Magic Quadrant and get
| acquired or sell the IP for a quick win and save yourself some
| major headaches.
|
| Even in down economies the appetite for M&A is still strong.
| jacquesm wrote:
| Indeed, in fact there is a clear shift from growth investing to
| acquisition in such markets.
| edgefield wrote:
| Unless your team is made up of serial entrepreneurs with one or
| more successful exits, then the only thing that really matters is
| customer metrics: usage, revenue, and rate of growth.
| omarhaneef wrote:
| And as a corollary: if you have those, and the company is
| investable, it follows that what changes in a "down" market is
| the valuation.
|
| The change is dramatic and fast though, and minds take a beat
| to catch up to the market.
| jacquesm wrote:
| That very much depends on where you are located. In Europe it is
| pretty much 'business as usual' at the moment, in the bigger
| cities I'd say that for the time of the year it is actually
| busier than usual in the start-up scene.
| dubcanada wrote:
| Not sure I understand, now is the best time to buy. If you're
| going to find a cheap hidden gem, it's now. Not when you're
| having to fight with hundreds of other investors all bidding on
| the next Facebook.
| ilrwbwrkhv wrote:
| This is a great time to weed out bullshit investors. Like BS
| jobs, some don't need to exist and this downturn is a great
| filter for them. The ones who are still investing as normal are
| the ones you should still raise from even when markets are
| different.
| bluelightning2k wrote:
| Do the work.
|
| Do consultancy. Become excellent. Build a team. Bootstrap your
| entire development phase. Sell enough to demonstrate the market
| yogini wrote:
| What I have been reading these days a lot, raising money is
| highly dependent on the type of product you are building.
|
| I think its good to approach some angels and raise pre-seed.
| p1esk wrote:
| Your account is dead
| joschmo wrote:
| This is an ideal time to raise seed money. Many funds have moved
| heavily down market away from the big Series B/C's of 2020/2021.
| You now have a lot of tourists at the seed stage who are
| obligated to deploy capital and even if it is at 10-20% of the
| previous rate, that's still five $2M seed rounds for every
| $50-100M series B/C that used to get done. You won't get a killer
| valuation like 2020/2021, but you will have plenty of
| opportunities. My recommendation is to look for a SAFE and hope
| the market clears in 2-3 years when you go to raise your A round
| (this implies you need to give yourself 2-3 years of runway with
| your seed money and/or get to $1M of ARR faster on decent unit
| economics).
|
| Some very juicy seed and series A money is being thrown around
| ignorantly by the same people that caused the last bubble. I've
| had 2 close friends / family raise their seed rounds in the last
| 4-6 weeks.
|
| Three things to be aware of:
|
| 1. VCs will take their time doing real diligence on your market /
| team. This means it will take 1-3 months from initial outreach
| instead of 1-3 days.
|
| 2. You should also be raising seed money from angels that are
| executives/fellow founders at your early customers / pilot
| partners. Ideally you fill a $2M seed round with ten $50-100K
| checks from these people and a great seed fund that will be value
| add-oriented.
|
| 3. Raise as much money as you can. In 2021, this was terrible
| advice. Now taking 15% dilution is not the end of the world if it
| is how you stretch to your next raise vs the 8-10% dilution of
| yesteryear.
| whitej125 wrote:
| We just closed a seed a few weeks ago. At least in my
| experience... "new deals on hold while taking care of their
| existing portfolio companies" never came up. Honestly I don't
| even think things like the massive tech re-valuation in public
| markets even came up (at least not that I recall). The convos
| continued to focus on team, market and GTM. I will say that from
| early 2022 to mid 2022 - GTM increased its weight in the
| discussion.
|
| Wrt/ post-raise - be smart about how you spend and leverage the
| fact that you probably aren't starting off with, hopefully, high
| burn. Lot's of companies might be operating under an assumption
| that there is quick cash around the corner... it's not as "quick"
| anymore I suspect.
| BatFastard wrote:
| ghiculescu wrote:
| I do early stage (first check) investments in companies using
| Ruby on Rails. We primarily look for founders with a long term
| view who will be fun to work with (not nerds). Feel free to reach
| out, details in profile.
| jw1224 wrote:
| If anyone has a similar investment philosophy for Laravel-based
| companies/founders, I'd love to chat too.
|
| We're looking to raise investment at the moment, and this kind
| of ethos really resonates with me.
| dang wrote:
| This is obvious, but please consider applying to YC--if accepted,
| it will not only give you initial funding, but increase your
| chance of obtaining further funding, even in a down market.
|
| https://apply.ycombinator.com/
|
| Less obvious, so worth adding: if you don't get accepted, keep
| applying for future batches. Repeat applications are more likely
| to get funded. The main thing is to demonstrate progress since
| the last time you applied.
|
| Edit: also, YC is _very_ invested in not overlooking applications
| from compelling founders who don 't have any elite or industry
| connections. It's one place where you can prove yourself based on
| how good you are, not who you know. Not that YC is perfect in
| that respect, but it's something people here really care about
| and have a lot of practice with.
| sn0w_crash wrote:
| Seed rounds are largely unaffected atm. You should pitch the team
| and vision, with a heavy focus on your path to $1M ARR.
| b20000 wrote:
| yeah, and make sure you know a lot of people and go to parties
| all the time, because a good team and vision is not going to be
| enough.
| sn0w_crash wrote:
| I understand why you are saying this, because I'm not from SV
| and have experienced this resentment
|
| But if there was ever a time that parties and vanity metrics
| didn't matter - this is it.
| wollsmoth wrote:
| Cold emails probably work too, but meeting people irl is
| still a great way to build your network.
| b20000 wrote:
| I've heard that many times before
| [deleted]
| mrtksn wrote:
| Some of the greatest and most successful companies or products
| come to light at difficult times. No free floating free money
| also means less competition that lives off on that money and less
| customers who are subsidised with that money.
|
| If you have an actually good product you should be fine, just
| make sure to present yourself in the right light as the dynamics
| are changing. Things can go a bit more meritocratic.
| candiddevmike wrote:
| How does one get the kind of connections to even raise a seed
| round? I'm in the Midwest, and unless I'm doing AgTech or
| something B2B no one wants to talk to me. I have a B2C SaaS
| product that could take off like a rocketship if I had more
| resources to dedicate to it.
| peyton wrote:
| Move elsewhere.
| dochtman wrote:
| Get into YC?
| scapecast wrote:
| What's the product?
| candiddevmike wrote:
| Homechart, the all-in-one household data management solution.
| Keep your household in sync and have all of your household
| data in one simple app. https://homechart.app.
|
| Right now it's at this awkward stage where it doesn't make
| enough for it to be my full time job and I don't have the
| skills/budget to market it effectively. It keeps growing
| month over month via organic search traffic though, so I must
| be doing something right.
| evilelectron wrote:
| Look up JOBS act (https://www.sec.gov/spotlight/jobs-act.shtml)
| With a strong business plan, this could be a viable and great
| starting point. Good luck!
| Bubble_Pop_22 wrote:
| If you hurry up maybe you can manage to raise in a non-down
| market.
|
| The best thing you can do is to speed up raising operations and
| also target new funds with lots of enthusiasm still. It's the
| same phenomenon everywhere, only the very elite people and
| entities can afford to sit out and not play, if you are a new VC
| fund you have to play even in a bear market, matter of fact it's
| an opportunity because the bear is reducing competition
| downstream as the bigger and elite funds sit this one out because
| their priority is survival not swinging at the fences.
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(page generated 2022-06-24 23:00 UTC)