Planting seeds that grow
How things change! In the US, the seed-fund process has changed dramatically over the last two decades. In Europe the startup landscape is even more dynamic and challenging. Seed funds exist throughout most of the European Union with estimates of about a billion Euros available to invest in startups.
It’s a process
Starup investor Philipp Moehring condenses the [long] process involved in taking a startup from its crude beginnings to something worth taking a risk on. Along the way there are many twists and turns and the need to stay focused is paramount. What’s interesting is that on the other side of the pond (here in the US), the startup procedure is not that radically different. We’ll get to that in a minute, but first an overview of the Euro-UK version of startup fund raising:
- Come up with the idea.
- Build the prototype.
- Build a fan/user base of at least 1,000 to test the prototype.
- Network to get in touch with angel investors; ask them for advice, input, contacts and other help. Engage people you’ve worked with before and get them on board for a small investment first. First round of seed funds would be 100–250K, all from private individuals, in 10–50K chunks. Investors would be from across Europe, so as to build an international company, and a local helping hand is always good.
- Incorporate the business for little to no money with a friendly lawyer.
- Raise a seed round with 100,000 in revenue or users (Euro, and active).
- To raise an institutional Seed round with a capital S, pitch the many great institutional seed investors across Europe. With the above metrics, raise 750K to 2M.
- Marketing and customer acquisition will now be in focus. Aim for 2 million users or revenue on this round and put serious thought into the business model, engagement metrics, and growth.
Meanwhile, back at the ranch
According to First Round, “seed funding is more plentiful and easier to raise today than ever before.” But there are also more startups than ever before as well.
Case in point: “If you have 4x the number of companies with seed funding, that’s 4x the players competing for the same money… making it 4x harder to raise an A round than it was five years ago.”
First Round recaps the following:
- To avoid the crunch (see above); only start a Series A fundraising process after you’ve hit major milestones. Starting too early can be very risky.
- Take your time during your seed round to choose the right investors who will help you raise the next round.
While it used to take weeks or months to raise a seed round, says BizJournals, some rounds get raised in a matter of days. Incubators and accelerators are pushing out larger numbers of companies and many are getting term sheets within hours of walking off the demo day stage.
The real danger with pitching earlier than you planned confirms both BizJournals and Medium – you probably haven’t hit the right milestones yet and haven’t had the time to set up a fundraising strategy.