PRE-SEED FUNDRAISING GUIDE: PART 1
How Do You Know When to Raise Your First Round?
Why raise money in the first place? Bootstrapping your startup is great, but a startup is an exercise in exploration, and by default, the odds of ‘getting it right’ immediately are low. The odds your customers pay you more than your monthly burn rate are even lower.
In addition to the capital, bringing people on board who have a vested interest in your company’s success is critical. Tapping into new networks and expertise is key for startups to survive and thrive.
When to raise
Build something worth investing in. Paul Graham puts it best, “When people hurt themselves lifting heavy things, it’s usually because they try to lift with their back. The right way to lift heavy things is to let your legs do the work. Inexperienced founders make the same mistake when trying to convince investors. They try to convince with their pitch. Most would be better off if they let their startup do the work — if they started by understanding why their startup is worth investing in, then simply explained this well to investors.”
What does something worth investing in look like at this stage? I think it has these four characteristics.
- Large Market: A large problem to solve. A viable path to being a company with a $1B+ valuation.
- Traction: Indicators you’ve had some success solving the problem.
- Formidable Founders: Led by people who get what they want and the skills to make it happen.
- Bay Area Based: Founders live in the Bay Area for these reasons. This one isn’t a requirement, but I would highly recommend it.
The way you measure traction depends on the difficulty of the problem you’re solving. For most companies, it’s early revenue. For harder problems, Letters of Intent (LOIs) or meeting industry benchmarks may be more appropriate. If you don’t have traction, here are some thoughts on creating a Minimum Viable Product (MVP) and getting traction.
From Day 1, you should be thinking about getting to have these four variables as fast as possible. If you don’t have these four variables, you should focus on doing what it takes to get them — and then fundraise.
Pre-Seed Fundraising Guide Continued → Part 2: How Much to Raise
This story is part of the Pre-Seed Fundraising Guide. Below are links to each article in the guide.💰 Intro: 10 Tips for Raising a Pre-Seed Round🕑 Part 1: When to Raise🤔 Part 2: How Much to Raise🔍 Part 3: How to Find Your First Investor📈 Part 4: How to Find More Investors❗ Part 5: Investors to Avoid📚 Resources: Essential Resources