Seed funding · Fundraising

How much should I raise in a seed round?

Arthur Veytsman Founder at Immerss, 6x Entrepreneur & Angel Investor. Building relationships with Angel Investors worldwide.

December 5th, 2014

I put in 500k of my own money in developing the platform with a strong believe in the idea.
I am now at fundraising stage and need some help. The way I see it I have 3 options:

1. Raise 750k to 1mm from Angels - Pros - Easier process, Fast, Least amount of equity given away. Cons - Shoe string budget resulting in slower technical progress, slower to market, chance to fail if we don't get enough traction with provided capital.
2. Raise 1.5mm to 2.5mm from Angels and VC - Pros - Achieve break-even, prove traction and build-up valuation prior to next round. Cons - Not as aggressive as we acquiring market place, not being able to hire A+ team.
3. Raise 3-5mm from VCs - Pros - Faster market acquisition, stronger technology platform, A+ team. Cons - More difficult and longer process, give out more equity.

I am new to fundraising so any good advise is appreciated.
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Krassimir Fotev Founder of Peer Belt Inc.

December 6th, 2014

You only have one option: raise the amount investors feel comfortable with, as function of your traction. Talk to angels and see how they feel about what you have built already. They'll give you good hints. Also, thefunded.com may turn pretty helpful finding the right VC firm for your venture. Highly recommend getting an account there. Hope this helps. Rgds, -Krassimir -- Krassimir Fotev Founder, PeerBelt Inc http://www.peerbelt.com kfotev@peerbelt.com

Kate Hiscox

December 7th, 2014

I would disagree Chris. I think there is an ever increasing number of angels but you are right on check size. However, a group of angels, aka Sandhill Angels etc. will come in with multiple angel participation. There are deep pockets in Dallas, I would look there but you'll likely have a lower valuation than SF from our experience.

Steven Vargas Product Manager at Hipmunk

December 5th, 2014

@arthur Raising a series A type round (2M and up) will be extremely difficult without either great metrics, an A+ team of people who have killed it before, or a technology that will dominate a tech industry. 

To be honest, raising an angel round of $500k isn't a fast/easy process either without some good metrics or someone behind you who believes in the vision. Likely a few month process if you can get in front of the right people. As you said you are looking for someone with connections this may take longer. 

I think, as @sanjeev said, figure out your next key milestones (user adoption, retention, revenue), and raise enough to hit those targets. Likely you want enough to be findable at series A. So how long will it take to show real traction, etc. How much money do you need to get there. Add 33% because you'll underestimate. Sell the vision. 

Also, I'm not exactly sure what your company is/does, but you should spend on the biggest risks first. So if your biggest risk is getting the tech right (think a company like Occulus), then spending the $500k is reasonable. If the biggest risk is that you haven't proven the need or that you can capture a large market (mist likely in a marketplace), you should be spending on proving that given a solution you can bring in tons of users. And if it's business model focus on showing users will pay and your costs (cac, unit costs) can generate huge profits. 

Good luck and hope that helps. 

Steve


Diego Oppenheimer Founder , CEO at Algorithmia, @doppenhe

December 5th, 2014

I think you need to approach it from a different angle and you need to understand the investment from the other side.

For angel investors usually 1-10 investments will succeed so is there enough in your business that they can get 10x return for what they put int. The answer here is usually yes because the amounts are smaller 10-50k. Also as you mentioned the least equity given a way and a speed of getting the money raised.

To be invested in by a VC you have to be VC fundable - not all businesses are. In fact most are not.
VCs are in the hunt for unicorns and you need to understand the fund size. They bet on companies that can pay their entire fund out (because of the high failure rate). So lets say the have a small 30 million fund and you ask them for 1 million for 10% of the company. This means they are looking to see if you could ever be valued at 300 million. 
This might well be within what you think your potential market size is and in that case VC funding is the way to go. 

Despite what the press might have you thinking getting VC funding is really hard. Raising a first round of capital in the 3-5 million without impressive revenue projections, and/or an enormous market that you have a chance at dominating will not be an easy task.

Hope this helps. 

John Arroyo Delivering ecommerce and cloud applications, CEO of Arroyo Labs

December 8th, 2014

Hi Arthur,

Early Growth handles our accounting, let me know if you want an into to one of their partners.  

Arthur Veytsman Founder at Immerss, 6x Entrepreneur & Angel Investor. Building relationships with Angel Investors worldwide.

December 9th, 2014

@John Arroyo.  
John please ping me by email with their info and your experience with them.  If its easier to discuss I'll send you my number.   

Rob G

December 9th, 2014

Arthur, what the $500k invested to date cash or the equivalent to cash in sweat equity?  That seems like a lot of cash to invest to still be pre-revenue... unless what you are building is not software and there's a lot of non-software R&D going on. 

averasko

December 9th, 2014

To get a VC round, you need traction. If you don't have it -- you are in the seed round stage.
During the seed round you need to raise enough to get to the VC round i.e. to get traction.
The min sum to raise: it is your 'worst case' analysis (but assuming the idea works) times 2.
But I would recommend to raise as much as possible as there will be no next round without traction.

Kate Hiscox

December 5th, 2014

Hi Arthur, Do you have any traction as yet? Users, MRR and so forth after the $500k? ᐧ

Arthur Veytsman Founder at Immerss, 6x Entrepreneur & Angel Investor. Building relationships with Angel Investors worldwide.

December 6th, 2014

@Steven @David @Mary.  We have built a disruptive technology and have partial A Team in place: Entrepreneurship, Product & Technology are in place and I am looking to add a 'Make It Rain' person and a digital marketing guru.  That will complete the team.
We have full action plan in place to execute on so I feel like I am in better place than most entrepreneurs when starting new venture. I also know that most investors will question why I spent so much before getting market traction but I am prepared to answer why I made that decision.
It seams to me that everyone participating in this discussion is on same page.  Its a pipe dream to think I can raise 2+mm at this state so I'll most likely proceed with Angels.  Thank you all for your valuable input.