I have recently decided to shift a focus (product/market fit) for our startup based on feedback we received while selling a previous product we built.
At what point is it appropriate to begin a campaign to get in touch with early seed investors?
I've done fundraising for two of my own startups, and advised 4 others. The only answer to this question is "now."
As soon as you think you have product market fit, you should be getting in touch with seed investors. It takes time for these relationships to develop; and in the startup world, time is always running out. Your pitch may fluctuate and adjust while you're out there shaking hands and building presentations. But don't let that uncertainty stop you from meeting people.
You may be tempted to try and perfect your pitch before you start talking to potential investors. But nothing polishes a pitch like repeated failure and feedback. So I'd recommend starting the process as soon as you have a firm enough concept to describe it in a meaningful way.
Also, it's important to distinguish the start of a funding "campaign" and the beginning of a "round." Meeting with investors (the campaign) should be continuous activity until you exit. Once you secure your seed round, you immediately go into series A mode, and so on. The reason being that each funding round has longer and longer lead times. Each relationship gets more and more difficult to obtain.
Actually issuing shares or convertible debt (the round) should , in most cases, begin only when you have lined up more investors that have said yes than you need to complete the round. Put another way, start collecting checks when you have more commitments to than you need to reach your funding goal. That way, you can use your momentum of receiving funds to motivate investors that are on the fence.
The best case scenario is that you oversubscribe your round.
But the moral of the story is starting campaigning for investors yesterday. It always takes longer than you want. So the sooner you start, the sooner you get funded.
After you've validated market demand. Another very important thing is to raise the "right amount' for your business.
It largely depends on the amount and the business type.
Investors will like maximum returns for as little risk possible so the earlier you go for funding in your launch plan, the harder it is unless your business plan is so strong that any investors will want to take the punt.
Investors typically will want to see how much you invested yourself and how far you tried to go prior to raising funds.
The best time to approach early stage seed investors in my opinion is when you are market ready and are just starting to show case the proof of concept with early market feedback.
Of course this depends on your business plan; how much growth/ market potential there is, the ROI on offer, the exit and timings around the exit and any risk mitigations you can offer to investors (for instance in the UK, you can get small enterprise investment scheme approved, which provides 75% investment protection).
There are many non equity routes you should look to explore ahead of considering equity; obviously the earlier you offer equity, the more you give away early.
I’ve worked with accelerators in NYC and Brazil and therefore have acted as a source of seed capital and helped companies both find seed capital and grow past seed rounds. I think this question is an important one, and requires some nuance since your sub-comment is unclear. Specifically, I don’t completely understand what you mean by “shift a focus” for your start-up. If you have achieved meaningful product/market fit, then like Sebastian says, go out and begin your campaign. And trust his great advice about getting in front of people, pitching and learning, etc… However, If you’re uncertain if you have achieved meaningful product/market fit or haven’t a more measured approach is required.
I advise you to be cautious about starting the fundraising process pre product-market fit because I’ve seen a lot of founders fall in love with the sexiness of fundraising and waste time and money while ignoring their business because they are “out fundraising”. It sounds so cool, and it puts the onus of the business’s success on a deal, not the entrepreneur’s ability to develop the start-up. It goes without saying that since start-ups race against time, misappropriating time, your most critical resource, is a mistake of the highest order.
So if you haven’t achieved product-market fit, don’t take a ton of meetings with VCs, write them tons of Emails to “keep them warm”, or any other time consuming activities. Instead, take an occasional meeting and get meaningful operational advice, build a few deep relationships and trust that as your company matures you can use those relationships to either get funding or valuable referrals. You don’t have to know everybody, you need a few people who know lots of others (and the VC community is small) who will seriously go to bat for you and refer you to colleagues. Besides, if you build a great start-up, VCs will also want to talk to you and you’ll get either or both of: a higher valuation and a larger stake in your firm post deal.
Lastly, your comment does not mention burn rate and cash so I assume that’s not a concern, but if for some reason you have a significant burn rate and limited cash then something must give. I typically think that if you’re inside a six month run rate (total cash/monthly burn < 6) and haven’t started fundraising then you’re in trouble because deals take a lot of time to close. So mind your expenses and runway, and align them so you have time to fundraise when you’re ready. If you have to, cut costs or look for a decent intermediate fundraising step: crowdfunding, small checks from friends and family, and accelerators. Happy to hop on a call to discuss any of this if you need to think this through in more detail. Good luck!!
At such time as you have developed a good white paper or description of the concept, you can begin a campaign.
After you are growing by 2,000 users a month or by $1,000 revenue a month.
However, you should always be fundraising a little. So, if you are spending 5% of your time before you have reached those KPIs and build relationships with investors and get feedback on the product, that's good.
