Seed Funding: When and How to Raise

Raising seed funding is a major milestone. Here's how to do it right based on what I've learned as both founder and investor.

When to Raise Seed

You're Ready When:

• Clear problem and solution
• Early product or prototype
• Initial customer traction
• Validated business model
• Strong founding team
• 12-18 month runway needed

You're Not Ready When:

• Just an idea
• No validation
• Unclear market
• Solo founder (usually)
• Can bootstrap longer

How Much to Raise

Calculate Your Needs:

1. Monthly burn rate
2. Multiply by 18-24 months
3. Add 20% buffer
4. That's your target

Example:

• $50K/month burn
• 18 months = $900K
• 20% buffer = $180K
• Target raise: $1M-$1.2M

Typical Seed Rounds:

• Pre-seed: $250K-$500K
• Seed: $1M-$3M
• Seed extension: $500K-$2M

Valuation Expectations

Pre-Seed:

• $2M-$5M post-money
• 10-20% dilution

Seed:

• $5M-$15M post-money
• 15-25% dilution

Factors Affecting Valuation:

• Traction and revenue
• Market size
• Team experience
• Competitive landscape
• Investor demand

Building Your Pitch

The Pitch Deck (10-12 slides):

1. Cover

• Company name and tagline
• Your contact info

2. Problem

• Clear problem statement
• Market pain points
• Current solutions and gaps

3. Solution

• Your product/service
• How it solves the problem
• Unique approach

4. Market Opportunity

• TAM, SAM, SOM
• Market trends
• Growth potential

5. Product

• Demo or screenshots
• Key features
• Product roadmap

6. Traction

• Revenue and growth
• Customer metrics
• Key milestones

7. Business Model

• How you make money
• Pricing strategy
• Unit economics

8. Competition

• Competitive landscape
• Your differentiation
• Barriers to entry

9. Go-to-Market

• Customer acquisition strategy
• Sales and marketing plan
• Distribution channels

10. Team

• Founder backgrounds
• Key hires
• Advisors

11. Financials

• Revenue projections
• Key metrics
• Use of funds

12. Ask

• Amount raising
• Use of funds
• Timeline

The Fundraising Process

Phase 1: Preparation (4-6 weeks)

• Build pitch deck
• Create financial model
• Prepare data room
• Get warm introductions
• Research investors

Phase 2: Initial Meetings (4-8 weeks)

• 20-30 first meetings
• Refine pitch based on feedback
• Build momentum
• Create FOMO

Phase 3: Due Diligence (2-4 weeks)

• Detailed questions
• Reference checks
• Financial review
• Legal review

Phase 4: Term Sheet (1-2 weeks)

• Negotiate terms
• Review with lawyer
• Sign term sheet
• Announce lead investor

Phase 5: Closing (2-4 weeks)

• Legal documentation
• Final due diligence
• Wire transfers
• Close the round

Total Timeline: 3-6 months

Finding Investors

Where to Look:

Angel Investors

• AngelList
• Your network
• Startup events
• LinkedIn
• Warm introductions

Seed Funds

• Research funds in your space
• Check their portfolio
• Look for stage fit
• Find warm intro path

Accelerators

• Y Combinator
• Techstars
• 500 Startups
• Industry-specific programs

Getting Warm Intros:

• Leverage your network
• Ask portfolio founders
• Connect at events
• Use LinkedIn strategically
• Build relationships first

Pitch Meeting Strategy

First Meeting (30 minutes):

• Tell your story (10 min)
• Show traction (5 min)
• Discuss market (5 min)
• Q&A (10 min)

Follow-Up Meeting:

• Deeper dive on product
• Unit economics
• Go-to-market strategy
• Team capabilities

Partner Meeting:

• Present to full partnership
• Handle tough questions
• Show confidence
• Close for commitment

Common Mistakes

1. Raising Too Little 18 months minimum runway. You need time to hit milestones.

2. Raising Too Much Too much dilution too early. Save room for future rounds.

3. Taking Money from Anyone Choose investors carefully. You're stuck with them.

4. Neglecting the Business Don't let fundraising consume you. Keep building.

5. Poor Communication Update investors regularly, even when things are hard.

Term Sheet Essentials

Key Terms:

Valuation

• Pre-money valuation
• Post-money valuation
• Dilution percentage

Investment Amount

• Total round size
• Lead investor amount
• Pro-rata rights

Liquidation Preference

• 1x is standard
• Participating vs. non-participating
• Avoid >1x if possible

Board Composition

• Number of seats
• Investor seats
• Independent seats

Voting Rights

• Protective provisions
• Major decisions requiring approval
• Keep these minimal

Anti-Dilution

• Broad-based weighted average (standard)
• Avoid full ratchet

Vesting

• 4-year vesting
• 1-year cliff
• Acceleration provisions

Negotiation Tips

1. Create Competition Multiple term sheets give you leverage.

2. Focus on Terms, Not Just Valuation Bad terms can be worse than lower valuation.

3. Use Standard Terms Don't accept unusual or founder-unfriendly terms.

4. Get Legal Help Hire experienced startup attorney.

5. Think Long-Term You'll work with these investors for years.

After You Close

Immediate Actions:

• Announce the round
• Thank everyone who helped
• Update your website
• Hire key people
• Execute your plan

Ongoing:

• Monthly investor updates
• Quarterly board meetings
• Hit your milestones
• Prepare for next round

Remember: Fundraising is a means to an end. The goal is building a great company, not raising money. Only raise when you need it and from investors who add value beyond capital.