Raising $3M Seed During a Pandemic: Lessons Learned
I’m not anyone special, neither are my co-founders. In fact, my entire team is full of first-time founders. None of us had ever stepped foot in Silicon Valley or had any prior experience running a startup, but there we were, in the middle of the century’s first global pandemic, trying to raise seed round funding and simultaneously grow our business.
With a little planning and a lot of hard work, we managed to raise a $3 million seed round with the industry’s best investors — all on our first attempt and during a global pandemic.
The purpose of this post is two-fold: Firstly, I want to share our story to motivate and encourage other startup founders to keep going, even in unprecedented times, and to share the elements of our fundraising strategy I felt were most successful; secondly, I want to share what didn’t work so well and what we would have done differently, to help other first-timers avoid the same mistakes.
Lessons Learned Raising a Seed Round During COVID-19
If you’re an entrepreneur or startup founder, you’re already an exceptionally hard-working human being, but I don’t think anything can prepare you for the demands — both physical and emotional — of trying to raise seed funding while also trying to run a startup. It’s incredibly difficult, exhausting, exhilarating, and entirely amazing — all at the same time.
Looking back, one of the things that made it even more difficult was that, as first-timers, we didn’t have a clue what worked and what didn’t — so we did it all. I’m going to make it a lot easier for you by sharing what worked well for us and what we would have done differently, which will hopefully make your funding journey easier and give it a higher probability of success.
Some points that I found relevant to raising during COVID:
- Communication over Zoom is ****’ing HARD — stay concise and to the point, you only have 15 minutes to make an impression;
- Building trust over Zoom is even HARDER, staying honest about the business & avoiding buzz words really helps
- The industry matters a lot… I hate to say this, but if you’re building a startup in an industry afflicted by COVID, you need to have a strong answer to “why now”
- Focus on unit economics of the business, understand what happens in multiple scenarios (future fundraising is extended, provide sensitivity analysis to CM based on certain market conditions & etc.)
One Person Raises, The Rest Keep Building
Do you know what is the biggest growth inhibitor for startups? Lack of money? Lack of talent? Nope, it’s a lack of focus. Running a startup, especially an early-stage one, is exhausting. There’s so much to do that if you don’t focus your efforts, you’ll spend all your time putting out fires instead of focusing on what matters: Growing your company.
There’s a saying that when looking for funding, you will hear at least 100 noes before you hear a yes. Our strategy was to increase our odds by putting all three co-founders to work building a CRM of investors, sending out emails, asking for introductions, and preparing for meetings. Sounds like a good plan, no? Well, keep in mind that this is our seed fund round. We had barely gotten our business off the ground and it was not the time to split the attention of the founders from our growth strategy.
For me, the most challenging part was staying on top of fundraising activities while simultaneously keeping up with the momentum my team was building in the business. While myself and the other co-founders were splitting our efforts, our business landed a huge new client, migrated our entire cloud server, and launched a new product. These were key milestones in growing our business and deserved the full focus of at least one founder.
My advice is to choose one team member (doesn’t have to be the CEO, but someone most likely to appeal to investors) and have their sole focus be funding efforts. You may be thinking that three heads are better than one, but in the case of startups, drawing the attention of key personnel away from the objective of growth can be a death sentence. All your investment efforts will be for naught if the very company you are raising funds for suffers because of your lack of focus.
In a nutshell, one person focused exclusively on funding is better in the long run than several people splitting their focus and efforts.
Fail To Plan, Plan To Fail
I’m not afraid to admit that when I first started looking for funding, I was terrified. I knew the stats, I knew barely 2% of startups actually raise money and the fact that I’m doing this during an unprecedented global pandemic meant all bets were off the table. However, when I got down to it, it wasn’t as difficult as I had expected — thanks mostly to the fact that I took the time to build a strategy first before simply picking up the phone.
My strategy was actually quite simple and based on the following premise: There’s no sense trying to persuade investors who don’t understand your space, so focus on investors in your industry and eschew the rest. An added bonus of focus is that investors in your sphere are actively looking for the best companies to invest in; if you’re both out looking for each other, there’s a higher chance you’ll find each other! Sometimes it’s just a question of getting your message out there and letting investors find you.
Here’s the Coles Notes guide to the strategy I used:
- Instead of looking for general investors, I invested my time in finding the best-in-class investors in my space; not only was there more interest, but investors that knew the space immediately understood the problem we were solving.
- Once I identified who my targets were, I scoured my own network — including friends and family — to see if there was an opportunity for a warm introduction; for the investors where I had no existing contact, I simply sent cold emails and prayed.
- What I sent to investors initially was a brief note that articulated why now was the best time for my startup to thrive, the problem that exists, the solution we provide, and of course my amazing team.
- Write out your thesis and consider building a ‘mind-map’ that you can send as a follow-up (if asked) to articulate the strategy
- This is the easiest step — sit back and hope for a reply! Don’t let this part discourage you — most investors didn’t get back to me. But all you need is one.
Investors are Like Tinder Dates
Not literally, but by approaching your investor strategy the same way you would a Tinder date, you can increase your chances of success. What I mean by that is don’t overwhelm interested parties right at the get-go. Many startup founders, frustrated by a lack of response and need for cash, will inundate the first investor who shows interest with PowerPoint decks, business plans, and any other document that can be sent by email — all before they’ve even met!
Coming back to our dating analogy, imagine you used this same strategy with your Tinder date. Before even meeting, you send your date a 20-page document describing what you’re looking for in a relationship and what you expect from your date; in addition, maybe you even send some examples of potential floral arrangements for your future wedding. As you can imagine, this strategy will overwhelm potential mates and get you stood up quite often, which is exactly what will happen with your investors.
Instead, keep your communication as brief as possible while highlighting what an amazing opportunity your business is — and, much like dating, don’t give everything away up front! Tease information and get your investors so excited about learning more about your business that you don’t even have to ask for a meeting — they’re asking you!
Find Your Match
Searching for investors is an exhausting process with lots of noes and plenty of ‘ghosting’ (the investor world really is like the dating world!). But typically, you don’t need 100 investors — you only need one. That’s why when I found an investor I was excited about (they were the leader in our industry and also immediately understood the problem we were solving) who was also excited about me, I dropped everything else and focused all my efforts on them.
Investment is just a means to an end
Most people associate success with fundraising, or, the amount raised but fundraising is the worst indicator of success. Paul Graham speaks to this very eloquently here. We decided early on that if we weren’t successful in raising money we’d still push forward (slower, but push forward nonetheless). Personally, I’m a believer that constraints (be it financial, lack of people, etc.) fuel innovation, scrappiness & build grit. The lesson for me was to focus on first principles and laser-focus on building a company, not to fundraise.
I hope your own fundraising efforts are as successful and that the lessons I learned help make your journey to success a little easier.