In a founder-friendly investment market flush with capital, there is no time like the present to raise. Still, though, fundraising for an early-stage company has its challenges. In a recent office hours event we co-hosted with cap table management platform Pulley, seasoned entrepreneurs and Y Combinator alumni Karim Atiyeh (Ramp co-founder and CTO) and Yin Wu (Pulley founder) offered their top advice for founders looking to raise a seed round.
Watch the event below:
Short on time? Here are the key takeaways:
1. When it comes to investing, rules are: there are no rules
As an eager first-time entrepreneur, it can be easy to acquiesce to demands and stipulations from exciting investors offering large checks. It’s important to remember, though, that an investor’s only true job is to ensure they don’t miss out on promising companies.
That means you shouldn’t feel that you have to actively hurt your company or change your plans in order to secure a particular investor. Generally, if an investor is genuinely interested in your company, they will find a way to make the investment work.
2. You’re not selling your company today—you’re selling your company’s future
Early-stage founders eat, sleep, and breathe execution—and rightfully so. But when pitching to investors, remember that you’re not selling execution; you’re selling future promise.
When making your pitch, don’t get bogged down with today’s details; instead, focus on tomorrow’s vision. Essentially, the investor you’re pitching is betting on you and your founding team. Show them why that’s a great bet.
3. The investor community is small and communicative
While it may seem massive and impenetrable to you, the investor community is actually relatively small and well-connected. Many investors know each other and will confer with one another regarding your company.
Pitching certain investors before you’re truly ready could come back to haunt you, because those investors might have reported negatively on your company to other prospective investors. That’s one reason why it's advantageous to keep your fundraising window short and speak to everyone at the same time.
4. Make sure you optimize (and understand!) the terms you accept
The terms you accept early on will set the precedent for all your future fundraising terms. If you raise early from an excellent investor with a stellar reputation, that reputation and the terms to which you agree will follow you in subsequent rounds. For that reason, make sure you optimize your early fundraising terms.
By that same token, make sure you actually understand the terms you accept. It’s critical to align your incentives with your investors’, so you don’t dilute yourself more than you expected early in your fundraising journey.
5. Momentum matters
Your team, product, and vision matter—but so does the hype you create. Investors are interested in getting in on deals with momentum, so do what you can to maximize it in your early rounds.
Make it your mantra to under-promise and over-deliver. For example, if you plan to raise $1M, tell investors you’re raising $750K. Then, when you’re inevitably oversubscribed, you’ll create a can’t-miss vibe that’s too enticing to pass up.
6. Capital is necessary, but it’s not the goal
There are no two ways around it: you need capital in order to hire a team, reach your next milestone, and scale your company.
While capital is necessary, it’s not your end goal. Remember: you’re fundraising so you can do other things. Keep that in mind when choosing your investors. Do you want someone who will add a lot of operational value? Who will be a strategic partner? Who is a customer? Who will be hands-off and let you run? These decisions are just as important as the total sum you raise.
7. Know what you’re signing up for
If you’re planning to raise a large round early in your startup’s journey, you need to understand what you’re signing up for.
If you want to create a lifestyle business that grows at a steady rate, it probably doesn’t make sense to raise a ton of capital. The reason investors are putting a lot of funding into your company is not because they’re looking for a 10% return: they’re looking for a 100X or 1000X return. That means they’ll expect hyper-growth—and hyper-intense hours and output from you.
Fundraising—and entrepreneurship in general—is hard. Save time and money by using a modern corporate card and finance automation platform like Ramp. With Ramp, you get corporate cards and payments with built-in expense and accounting automation software, all in one easy-to-use and free solution.
As a startup founder, drafting a mission statement is one of the most impactful exercises you can complete early on in your journey. To help, we created a mission statement generator to inspire your own.