Entrepreneurship · Fundraising

At what point should I start thinking about raising a seed round?

Anh Nguyen

May 12th, 2016

I currently bootstrap my startup. I probably have enough cash to last 6 months, and our MVP is scheduled to go out in 2 months. One issue we have is that we are in the foreign language space, which means we need to roll out one language at a time. For that reason, we do not expect to get huge traction right away, but instead are focusing on increasing retention among acquired users. 

I want to focus on product development and traction at this stage, but I also understand that fundraising could take 3-6 months. Does this mean I need to at least start working on reaching out to investors now, as I am a first time founder with limited investor connection? What other some other potential options? Off the top of my mind I have: crowdfunding, applying to an accelerator. 

PS: my team right now is based in South East Asia, but I will incorporate in the US. 

Adam Bell Connecting China, ASEAN and the world

May 13th, 2016

Now.  Bootstrapping is good to a point but what would you need to go through MVP  to first commercial milestone? 

Nick Saunders CEO and Founder at Getlokal

May 13th, 2016

Having at least an MVP before you start fund raising is always preferable in my opinion. You say you are in the foreign language space which is already fairly crowded so you will need to be able to show that you are different and superior to existing services. Having actual customers and being able to show some growth, even if it is based on a small time period, will definitely help. If you can show this in more than one language it should greatly increase your chances to raise funds. So I would delay serious fund raising activities until you have a working product, work hard to get there as soon as possible and then start your chosen approach. Meanwhile keep open to funding opportunities that may arise around you and take the time to look at and decide which is the best step for you, (continue bootstrapping, angels, seed round, accelerators, loans, Govt. programmes etc.), so you have a plan when the timing is right.

Anh Nguyen

May 12th, 2016

Hi Michael, I just added you on LinkedIn. Thanks.

Andre Sr. Managing Partner | Business Funding | Speaker | Mentor

May 13th, 2016

Based on the brief synopsis you have given, it appears you do not have a product to launch yet. What will it take to complete your product and begin selling it? This is important because now you move from concept to proof of concept, meaning there truly is a market for what you are promoting. No better validation than someone writing you a check. This also moves you from hypothesis to reality. Now you know your pricing is good and acceptable in the marketplace. With these things completed you can figure out how to continue to bootstrap or if you need additional capital and you will have numbers to prove why you need the money, what it will do for you and how you will pay it back. Crowdfunding is great, however; it is still based on your network of influence. So if you don't know many people with money and they don't know many people with investable means, it will fail. Be sure to consider this before you spend money to set up a campaign. Short answer, sell something first then figure out how to get capital!

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

May 14th, 2016

You should probably start networking and talking to potential investors now.  It turns out that investing is extremely personal based, and talking to potential investors gives you an idea of who is a good fit and who isn't.

One thing that you should do is to start learning about the local angel investing community.  Who are the investors, where are they, and what are they looking for.

Also fundraising often can take as much as a year or more.  One thing is to make sure that you absolutely have the cash cushion so that you don't run out of money once you have MVP.  The longer you survive, the more attractive you are to investors.

David Austin Relentless problem solver and innovator.

May 13th, 2016

I tend to agree somewhat with Adam.    It doesn't hurt to start now, and proper mvp validation can often require investment.  This would likely be an angel though, not a seasoned vc, though depending on your value proposition a seasoned vc, maybe a seed fund or even an accelerator, just to get on the radar if nothing else.  I see a lot of startups run out of steam quickly right after doing the mvp, don't have the funds for proper AB testing, marketing and such, and thought "if you build it they will come" - not true and can be discouraging.  So they don't get the validation they need to take it to the next level and give up.  You only get one chance to make a first impression ... That means you need to both have the resources for the right impression and yet not get ahead of yourself.  It's a careful balance, so the answer to your question is say is: lay the groundwork now for courting investors, whatever that takes.  That also means now may also be the time to start establishing a network in the states. 

Adam Bell Connecting China, ASEAN and the world

May 13th, 2016

Thanks David your detailed comment on the reasons highly relevant,  I'm based in Asia and find that an Angel or a pro with Synergistic issues maybe best fit,  main things is to have a stepping stones road map for what's next and if you do hit gold make sure you get along with that person.. If it's someone who can take you to the next level all the better... 

Joe Albano, PhD Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.

May 15th, 2016

The complexity of funding has derailed more startups than just about anything else. This is a topic that deserves a lot more attention than an FD post, but here's a perspective to consider. 

The challenge to founders is not about: 
  • The Idea
  • The Product 
  • The Market 
  • The MVP
  • Traction
  • Funding
  • Investors
  • Burn rates
  • Hiring the right people  
  • Forming the right partnerships
It's about ALL of the above and so much more.

This becomes particularly challenging because most founders (and founding teams) have one (or a few) items from the list that they prefer (usually the product) and at least one item that they avoid at all costs (usually developing the funding and investing model). This is were a good business coach can add a lot of value. 

For purposes of this post, let's focus on the funding and investing model. The founding team is responsible for knowing what resources (including but not limited to money) will be required to launch the business. In addition they are responsible for developing and executing the plan for obtaining, tracking, and responsibly using those resources. 

Hoping for the best, being overly optimistic, courting "C" round investors, and all of the things that founders often do to feel better about themselves, their companies, and their decisions are ways to avoid doing the difficult and imperative work. 

Let's be clear THIS IS HARD. Very few people--especially people with a creative vision--enjoy going "hat in hand" and asking for money. No one looks forward to watching equity slip away, no matter how much they think the company will be worth in the future. The battles over money, control, vesting, and all the other crap are both real (they happen) and meaningless (they ultimately don't matter). 

It seems that you have learned that you should have thought about this earlier ... almost every founder should (even the experienced ones). The good news is that it seems like you have some runway and are paying attention now. 

A few questions to consider: 
  • How much money will you need? 
  • When will you need it? 
  • Where will it come from? (it doesn't matter what you call your funding round - can you get the right investors at the right time?) 
  • Who will provide it when you need it before "traditional" investors are ready to invest? 
  • What can you do to have the right investors in place at the right time? 
Here is the bottom line: If you're not ready for a "seed round" and you need money, you have three choices: 
  1. Figure out some way to get what you need without spending money.

  2. Find someone other than a "seed" investor to bridge the financial gap.

  3. Stop spending money now, because you won't be able to launch and the money you are spending now will be wasted. 
Does that help? 

Sam McAfee Building better technology leaders and teams

May 13th, 2016

Great answers here. You won't get a seed round without some traction, where traction typically means monthly subscribers on a growing curve. And that's hard to pull off without money--welcome to startups. :)

Traction is very hard. Start yesterday! That should probably be your focus, even above the MVP, and don't wait until you launch the MVP start signing people up.

I assume you're signing up potential leads on some kind of landing page ahead of time. Once you have it up and running, you're going to burn that list fast, and only convert a few people. You'll need a solid strategy to continue marketing the product. In addition to a language, you should probably focus on a specific customer profile (age, phase in life, income, job, whatever) so that you can really nail those people's pain. Why are they learning Spanish (or whatever)? How can your product help?

What channels do these people hang out in? Blogs? Clubs? Conferences? Magazines? The book "Traction" (and the site?) have the list of all the major categories. Go through it and narrow down three or four where your customer profile hangs out. And go get them.

I'd be happy to talk more about it (we already connected). I have a strategy here on Twelve Week MVP. It's a general approach to what comes first, next, etc.

Colin Behr VP, Business Development at Vungle

May 13th, 2016

Agreed with other people on this thread that you do need to have some sort of a product to show before you start raising - at least based on what you've said. Unless the team has an incredible track record and would be implicitly trusted by a group of clued-in investors, you're going to need to show some level of validation. 

Having 6 months of cash is fine, if you're still in validation mode (since you won't know yet if there's something there or not). However, if you plan to start raising in two months, that only gives you 4 months of runway and gives you zero leverage when actually raising since investors will know that you are under time pressure. I would recommend looking at doing some sort of a pre-seed - a small round that gives you some more runway so that you're at least not running out of cash while trying to raise.