I am a big fan of bootstrapping but I am also a big fan of creating a global company that creates values for millions of people. But to be able to take the leap from a bootstrapped startup into a global business you need funding. And for the past few months I have been working on putting together a $600k seed round for my startup Bungalo and here are a few of the things that I have learnt.
seed round vs. series a
I always thought the seed round would be easier than the Series A round as the amounts in the seed round are usually much less than they are in the Series A round so I thought it has to be easier to raise $400k-1 million (seed round) than it is to raise $2-5 million (series A). But what I have learned with dealing with VCs in the past few months is that most of them are much more interested in coming in the series A round. From what I have perceived the reasons are usually the following:
- Due diligence: VCs have to do the due diligence on the businesses they invest in and it’s usually the same work for a business that they invest $100k in as it would be for a business they invest $10 million in. So most VCs want to do the big deals rather than the small deals as it is the same amount of work for them.
- Less risk: the difference between businesses raising a seed round and it’s series A is usually huge from the investor’s perspective. Businesses in the series A round usually have proven everything about their business and how they intend to grow to give the investor an 10x, 20x or a 100x on their investment. But seed round businesses usually still have some things to prove, making them a bit more of an uncertainty for the investor.
- Fear of leading: Investors always feel better about investing in your business if they know that somebody else has already done so.
Talk to more vcs!
There is a lot of things that have to line up for you to get a good investors to invest in your business, things such as:
- They have to like you and your team.
- They have to like your business and believe in it.
- You have to like, trust and want to work with them.
- Your business has to be inline with their investment strategy
- Preferably they must have experience/knowledge/networks that add value to your company.
- And they must be willing to put money into your business.
Most of the founders I know (myself included before I figured this out) would go to all of the investors/VCs in their city/area and when they would get “no” from them all they would conclude that there is no money to be had. But here is the problem with that, to find the right VC to work with you usually have to pitch for at least 10-20 VC funds before finding the right one for you to work with. I started my business in Iceland which is a small market so there are very few VC funds, today there are two VC funds investing in seed rounds and two VC funds investing in series A rounds. Therefore the likelihood that I will find a VC to work with in Iceland is very limited. I also incorporated in Canada last year and I have an office in Halifax, in Halifax there is one VC fund investing in Seed and two in series A. So no matter where you are in the world you most likely have to go out of your local market to be able to find enough VC funds to pitch to before you find the right match.
it’s extremely time-consuming
I had heard this from so many founders before but still I didn’t really realise how time-consuming it is until I actually went through the process myself. If you are a solo founder like myself then prepare for your whole business to slow down while you look for investors because so much of your time will go into meetings, communications, gathering information, preparing documents, pitching, improving your pitch, pitching again, traveling etc. etc. etc. It really is a full-time job to find an investor.
