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MenuWhat would be considered "enough traction" before going for a seed round?
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If you can skip investors and run with your customers money - do this until you're ready for big round. What is good traction...? It depends on how you sell it to investors, how you pitch them, actually. It's not about real traction on this stage in 99% of the cases. But... if you really want to understand what the best traction is, I think it's all about retention and customer happiness. If you have very less amount of money, or companies can't leave without your software and are going to use it daily, switch from other e t. c., so this is the best traction measurements. You can grow money and # of customers, but if they really use your product and like it - the best traction you can have. If you want understand your best traction before the launch, so initiate pre-orders with great discount. How much traction you have is not so important as how fast and how good it is.
With the progress you have made you should be able to get seed funding.
The advantage of waiting longer is that you will be able to set a higher valuation and retail more of your company.
If you need the money to properly support the business and customers then it sounds like about now is the time to seek investment.
Happy to discuss further if you want to schedule a call.
Based on what you have written here, you have proven "The dogs will eat the dog food." Do you have the cost to deliver the product in an analysis that will show a potential investor it will be profitable? Do you have a business plan? You need this information in order to get through the filtering process a potential investor will put you through. Make sure as you are beginning to deliver the product, you maintain an accurate list of costs you can compare to your projections and make sure they are realistic.
I have reviewed a number of business plans presented to investors. The best ones have a one page executive summary with a very high level describing the "Why" the product exists, macro projections and a high level summary of the leadership team. The detail follows in the actual business plan. You only have a few minutes to get the investors attention enough to turn the page and keep reading.
Feel free to reach out for a call if you would like to discuss further.
There are two clear paths for you.
After having raised several rounds of multi million dollars for my venture, My suggestion would be the following.
I understand that your SaaS solution would be in the 10-20K/year range. The risk because of the pricing is that scaling this would require lot of tactile and strategic thinking and experimentation. The most important thing for you is to figure out if there is a market for something. Hint: You will figure out only after you have acquired at-least 50 customers.
I would suggest you try and do it as a side business at-least until you have reached 10 paying customers from your existing 3.
By the time you reach 10, you will have enough confidence to jump full time into this.
By the time you reach 50, you know that there is enough uptake for this.
Now you can decide if you want to bootstrap or raise capital and you could go to series A directly. In your case both are possible.
Do let me know if you need more inputs. Would be happy to help you think through this and also help you in scaling up.
Vivek
Related Questions
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When raising money how much of equity do you give up to keep control? Is it more important to control the board or majority of shares?
It entirely depends on the kind of business you have. If you have a tech startup for example, there are pretty reliable assumptions about each round of funding. And a business plan and financial forecasts are almost totally irrelevant to sophisticated tech investors in the early stages of a company's life. Recent financial history is important if the company is already generating revenue and in that case, a twelve-month projection is also meaningful, but pre-revenue, financial forecasts in tech startups mean nothing. You shouldn't give up more than 10-15% for your first $100,000 and from that point forward, you should budget between 10-20% dilution per each round of subsequent dilution. In a tech startup, you should be more nervous about dilution than control. The reality of it is that until at least a meaningful amount of traction is reached, no one is likely to care about taking control of the venture. If the founding team screws-up, it's likely that there will be very little energy from anyone else in trying to take-over and fix those problems. Kevin is correct in that the board is elected by shareholders but, a board exerts a lot of influence on a company as time goes-on. So board seats shouldn't be given lightly. A single bad or ineffective board member can wreak havoc on a company, especially in the early stages of a company's life. In companies outside of tech, you're likely going to be dealing with valuations that are far lower, thus likely to be impacted with greater dilution and also potentially far more restrictive and onerous investment terms. If your company is a tech company, I'm happy to talk to you about the financing process. I am a startup entrepreneur who has recently raised angel and VC capital and was also formerly a VC as part of a $500,000,000 investment fund investing in every stage of tech and education companies.TW
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What roles should the CEO and CTO have in a VC meeting?
The more important first impressions to leave a VC with are: 1) That you both are credible and inspire confidence that you can execute the plan you're fundraising on. 2) That there is good chemistry and a great relationship between the two of you; 3) That you can adequately address the concerns/objections/questions the VC raises. The CEO is expected to do most of the talking because the CEO should be the best person in the company at articulating the vision and value of the product and company you're building. If your CTO is comfortable presenting part of the pitch, it would be ideal for the CTO to speak to the product slides. The most important thing is for the CTO not to be a "bump on the log" meaning that you don't want them sitting there for most of the presentation with nothing to say. If you feel that's the case, you really shouldn't bring your CTO. Most VC meetings will not get technical and under the hood. Each question answered should be answered by the person best qualified to speak to that question. You should make eye-contact with your partner and use subtle body language to find a way to cue the other person to speak to that question or simply offer "CTO, would you like to answer that?" Bottom line, make sure that the CTO can speak confidently enough about the product and vision, otherwise -unless specifically asked by the VC - come alone. Fundraising is a big distraction to building and a good VC will always respect that in a first meeting, the CTO can be excused from attending in priority of building product. Happy to talk to you both on a call about helping get you feeling a bit more confident and prepared before your meeting. I was formerly a VC associate for a $500m fund and have raised money from VCs as a serial entrepreneur.TW
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Pre-seed / seed funding for a community app... valuation and how much to take from investors?
To answer your questions: 1) Mobile companies at your stage usually raise angel funding at a valuation equivalent of $5,000,000 for US based companies and $4,000,000 to $4,500,000 for Canadian companies. 2) The valuation is a function of how much you raise against that valuation. For instance, selling $50,000 at $5,000,000 means you are selling debt that will convert into shares equal to roughly 1% of your company. 3) I would encourage you to check out my other answers that I've recently written that talk in detail about what to raise and when to raise. Given that you've now launched and your launch is "quiet", most seed investors are going to want to see substantial traction before investing. It's best for you to raise this money on a convertible note instead of actually selling equity, especially if you are intending on raising $50,000 - $100,000. Happy to schedule a call with you to provide more specifics and encourage you to read through the answers I've provided re fundraising advice to early-stage companies as well.TW
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How much equity is typically taken by investors in a seed round?
From my experience I would not advise you to go with Venture Capital when you're a start-up as in the end they will most likely end up screwing you. A much better source for funding would be angel investors or friends/family. The question of how much equity should I give away differs for every start-up. I remember with my first company I gave away 30% because I wanted to get it off the ground. This was the best decision I ever made. Don't over valuate your company as having 70% of something is big is a whole lot better than having 100% of something small. You have to decide your companies value based on Assets/I.P(Intellectual Property)/Projections. I assume you have some follow up questions and I would love to help you so if you need any help feel free to call me. Kind Regards, GiulianoGS
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What is the average cost to close a round of seed funding?
I'm reluctant to say "it depends," but legal expense for a true seed round varies dramatically based on: 1. Whether the investment is structured as a priced equity round vs. convertible debt (or variations on that theme such as "SAFE") 2. Number and location of investors, timing of closing(s), and prior angel investing experience 3. Company counsel's efficiency and fluency in industry norms 4. "Deferred maintenance" necessary in areas like corporate formation, founders' equity issuance and IP assignments. #4 is the item that takes many entrepreneurs by surprise. On the investor side, it leads otherwise very savvy observers to give unrealistically low estimates of legal expense because they assume starting from a clean slate. This item is also most resistant to automation or standardization because startups come into being many different ways; each story is unique. I would put the lowest estimate at around $3K, assuming the company is already formed as a Delaware corporation with clean, basic documents, has issued founders' stock and handled related IP and other matters, and simply needs to issue a convertible note to one or two accredited investors with minimal negotiation of documents. The highest I would expect for a true "seed round" is about $15K, where some corporate cleanup is needed, the deal is structured as a streamlined kind of preferred equity (e.g., Series Seed), there are multiple closings with investors on different dates and terms, etc. Beyond that point we're really in "Series A" territory, doing things like creating a full set of VC preferred stock investment documents (about 100 pages), negotiating with investors' counsel (at the company's expense), and so forth. The expense and complexity of a traditional Series A deal have been the main impetus behind using convertible debt or Series Seed-type documents for seed-stage investments of less than $1 million or so in recent years. I hope this proves helpful. Always happy to chat and answer further questions.AJ
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