Raising your seed round

I met with two startup founders last month that wanted feedback on their plans for building a business around an energy efficiency analytics technology. It's a fascinating product with a niche technical market. They've already secured a large corporate partner and are starting to look for seed investors. They've got a long road ahead of them and I'm excited to see where they end up. Here are some of the notes I followed up with:

  • Salt. First of all, don't take anything I say too seriously (or anyone else for that matter). You're the founders. You're the ones who are doing the work at the end of the day. People succeed all the time against all external expectations. It's good to use constructive feedback if you find it helpful but don't try to take everyone's input verbatim or you'll drive yourselves insane!
  • Story. Right now you're in the middle of developing the narrative for your startup. It's a never ending process of discovering what strikes a cord with what type of audience and iterating your story to maximize impact. This is critically important for inspiring not only your investors but also your partners, employees, customers, etc.
  • Plot. I always find it most compelling to start with the problem. What's the pain your trying to salve? Why is it expensive/frustrating/urgent for your customers? How big is the problem in dollars? Then go to your solution. How are you solving the problem? Why are you solving it that way? Then your team. Who are you? Why are you so motivated to start this business? Why are you the best people on Earth to do it? Then to your status. Where are you right now? What's your financial/cap table position? Then to your next steps. What are your current milestones? What stands in your way? What do you need to achieve your goals?
  • Strategy. Right now you're smack dab in the middle of the fuzzy front end. That can be confusing and downright frustrating. On the other hand, it's also the best time to make sure you consider all of your different growth options. Build a VC-backed scalable startup? Build a corporate spinout? Build a new business line within a larger company? Build a consultancy that does product development along the way? There are always options. The best option isn't always obvious.
  • Investors. All money is green but it comes from very different pockets. The best possible kind of money is customer money. Not only is it non-dilutive but it's the clearest demonstration possible that you're actually solving someones problem for them (otherwise why would they pay you?). How can you access customer financing more quickly? Second in line is grant funding. This is great because it's non-dilutive but it's obviously not sustainable. What kind of government/foundation grants might you be eligible for? Then you've got private investor financing (in all its flavors). This is where it can get messy because of dilution and divergent incentives. Despite it's treatment in popular press, I usually recommend founders treat this as a last resort (although for some businesses it's an absolute necessity). If it's your only option (rarer than you might think) then make sure you get the right people at the table. Angels, VCs, strategics, etc. all have their own goals and priorities that you need to keep in mind.
  • Risk. At least half of pitching investors is storytelling, the other half is risk mitigation. People investing their own money get worried they'll lose it. They'll come up with a lot of questions about how things can go wrong in various ways. The more questions you can anticipate and prepare diligent, detailed responses for, the better off you'll be. Good fundraisers practice preemption. They bring up the hard questions themselves and show how they are already working to mitigate the extant risks.
  • Resources. Here is some additional content you might find helpful:
Pay only selective attention to would-be advisors (in this case, me!). Nail your story. Decide where you want to end up. Figure out how you can succeed without (or in some cases) with investors. Understand and mitigate your risks. If you've done that, you're well on your way towards (or beyond) your seed round!