Raising a seed round of fundraising has never been easier. The amount of money invested in venture capital has climbed over the last ten years. The number of seed round funds has also increased. With all this, it should be a breeze for anyone with a great idea to swoop in and get investment, right? Wrong.
Despite the increase in funding available, it is still hard to raise money. One CEO, Tommy Nicholas, highlights some of the difficulties:
“There are red flags [for fundraising], but there are no checkboxes that a VC is going to go through [and decide to make an investment].”
In other words, there are things that you should avoid, but not a clear target for what you need to have. After all, some companies raise money on a landing page and a waitlist. Others raise with revenue and sales growth.
VC Red Flags 🚩
As for the red flags, I was able to draw out a few of these from a panel of industry experts. Here are a few:
- Your “unique advantage” is that you “work really hard and have great user experience” (these should be table stakes)
- You ask a VC for a non-disclosure agreement (NDA). Most VC’s will not expose their firm to such a liability.
- Lack of knowledge of the market. Josh Kuzon, Principal at Reciprocal Ventures, said that he met many founders who were unaware of the competitive landscape.
What do VCs look for?
As we mentioned, there isn’t a crystal clear criteria of what VCs look for. There are, however, a few things that don’t hurt. Two of these are prior entrepreneurial experience and an ability to sell a vision. Andrew Ackerman, Managing Director of Dreamit Ventures, says:
“There’s something in the DNA of people who have successfully gotten a customer to write them a check that is fundamentally different from people who have never done that.”
Ultimately, Tommy Nicholas says, a VC is going to write a check because they believe in the vision that you convey. You have to make someone believe in your company so strongly that they will be able to convince their higher-ups.
Conclusion
Venture capital can be a difficult world to navigate, but transparency into the process is getting better. More and more founders are being open about the process, and there are some great books that shed light on the subject.
Do you have any tips on raising a seed round of fundraising? We’d love to hear your tips, as Commandiv is in the process ourselves. Leave your comment below.
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