The timing of your fundraising can have a big impact on the outcome. Here’s how you know if it’s the right time to raise your seed round.
Revenue Growth
Great Situation — You’ve been growing at 20%/month on revenue (or a comparable metric) for 6 months.
Okay Situation — Your startup has been growing at 15%/month on revenue (or a comparable metric) for 3 months.
Bad Situation — If your company’s revenue numbers (or comparable metrics) are trending down, you should wait to raise. Most investors will focus their attention on growing companies.
Tech Breakthrough
Great Situation — You have clear evidence your technology beats existing offerings by an order of magnitude. For example, when Skype launched in 2003, they made expensive international calls free.
Okay Situation — It appears you have technology that will beat the market but the evidence is limited, e.g. you have an impressive demo but it’s not live with a customer yet.
Bad Situation — You have research and prototypes indicating a potential market advantage but you are yet to run your own end-to-end tests.
Potential Revenue
Great Situation — You have signed contracts with customers who are already live. The contracts are worth $500k+/year and the payments will start within 60 days.
Okay Situation — You have live trials with potential customers who are happy with the product. The contracts would be worth $250k+/year but terms are not finalized.
Bad Situation — You have no live trials, customers are interested but financial terms have not been discussed.
Team Resumes
Great Situation — You have a team with globally recognized skills, applicable to a massive market. E.g. you’re a drone company and the founders recently won the International Aerial Robotics Competition.
Okay Situation — Your team has academic and/or industry expertise relevant to a big market, with a strong history of performance. For example, you’re building a fintech company after working at Goldman Sachs for a decade.
Bad Situation — If your team’s expertise is from an industry different to your startup and you’re not a serial entrepreneur, you should expect to demonstrate traction or a tech breakthrough before being fundable.
Use these guidelines to talk to investors at the best time for your company, not just when they approach you or when you’re tight on money. Good timing can make all the difference.
This article is part of a series on Seed Fundraising:1. When to Raise Money2. How to Build a Deck3. The Basics of Meetings4. VCs vs Seed Funds vs Angels5. How to get a Meeting6. The 5 Most Common Pitch Mistakes7. How to get Early Momentum8. How to Handle an Angel Investor Meeting9. How to Close the Lead Investor10. 4 Investor Gotcha Questions11. 10 Traits of Successful Founders
If you’re a B2B company at the seed stage looking for help, you can reach me at ash@ashrust.com.
Thanks to Kaego Rust and David Smooke for reading drafts of this.