VC Minute – quick advice to help startup founders fundraise better.
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Seed investing is a team sport.
When it’s done right, you’ve got the right people around the table that can provide support to you on an ongoing basis because they have a literal invested interest in the success of your business.
Great investors will help you with hiring; they’ll bring you candidates. They’ll help you with sales; they’ll bring you potential clients and partnership opportunities. They’ll be there for you when you need them. They’ll be that mentor in your corner; that support structure when you’re going through the hardest times.
All seed funds work like this. We want to invest with other good funds around the table. We want you to have that support because you’re more likely to make it to the next level.
And if you wanted to dunk on VCs, you could also say that there’s a herd mentality to it. This is where the pool party analogy comes in, and why the pool party analogy is so strong. Everybody wants to make sure that there’s somebody else in the pool.
The flip side of that situation is true as well. Founders that I know with prior startup successes will not take a check from just one investor. They want the optionality of having multiple investors around the table so that they can get support from different places in different ways when they need it.
And it’s not just because of mentoring and connections. Different funds will be at different stages when it comes time to raise the next round. Some will be able to do their pro-rata. Some will want to double down, and some may not be able to do anything at all.
Those experienced founders know that if they only have one investor from their previous round and that investor doesn’t want to do the next round, they’re screwed.
If the best founders will not even take a single check from a single investor and they want a party round, and if all of the other funds participate in the market in this way, how are you going to buck that trend? You are not going to get one investor to write one check and take your whole round. It just doesn’t work like that.
Don’t fight the market on this. Figure out what is the right size of round that you can get done, and then go find investors that will take a portion of that.
If you’re trying to raise half a million dollars, you need to find people that write between 100 and 250K checks. If you’re trying to raise a million dollars, then you want to look for funds that write checks somewhere between 250 to 500K.
Find the right investors for the right round. Or right size your round for the investors that you’re targeting.
Call it what you want. But seed-stage investing is a team sport. The fewer team members you have around the table, the weaker position that you’re in, and the less likely you’re going to get to the next level.
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