The Seed Round in detail, including what investors expect, the stages leading up to it, and what comes. Watch the full video — free, no account needed.
The Seed Round in detail, including what investors expect, the stages leading up to it, and what comes after it. It also touches on how to prepare for both Seed and Series A rounds.
The Seed Round: The Seed Round is the very first round of financing that you’re going to be encountering. This is the round that comes after the Friends and Family, which is the first initial pool of capital to get going. Now, anything before a Series A, whether it’s a micro-seed, a pre-seed, or whatever seed, it’s still a seed round. On a seed round, what you’re doing is you’re raising an amount that is going to go toward meeting the expectations that you’re going to be getting 18 to 24 months later. When you are at a Seed Round, 1) The investor is going to expect that you have the founding team in place, ideally, people with credible skill sets and expertise. 2) You have a roadmap for the next 18 to 24 months where you’re showing them how you’re planning to execute and to deliver on your promise. When it comes to preparing for a Seed Round or perhaps a Series A Round of financing, the
preparation is going to be the same because those are rounds that, at the end of the day, they’re going to take you anywhere between three to six months to complete from Point A to Point C. But the way that you’re going to be thinking about those is first you need to prepare. In terms of preparation, it is probably going to take you about a month or two. Then it’s going to be all about getting out there and making sure that you have a good target list of investors that you can tackle on. You want to go after the people that have the money for you. The Seed Round and the Series A: The Seed Round is going to happen 18 to 24 months before the Series A. One thing that could happen is that in 18 to 24 months, you’re not able to make enough progress in order to get to the Series A. One thing that could happen is that you may need to raise an internal round, and that is called a Bridge Round.
That is when you grab money from existing investors in order to continue extending the amount of time that you have to execute so that you don’t run out of cash and to accomplish those milestones and those metrics that are going to get you to a Series A and to meet the expectations of those investors. The discount rate that you’re applying on the valuation that you will be getting on your Series A, which is going to be basically equity, and there is going to be a price established on your business, so it’s a discount out of that, that they’re coming in. Then the valuation cap, which indirectly is a valuation. On a Series A, it’s going to be more equity. It’s going to be more of a bunch of documents, typically, between five to six that you are signing, and where every single clause needs to be negotiated because one of those clauses could literally mean nothing to you today, but in five
to seven years, it means getting you out of the business—getting kicked out of the business. So you want to be very careful. And, obviously, legal fees are going to be more expensive, the equity round on the Series A versus the Seed Round because with a convertible note, you can literally get it done within a couple of weeks. It could be anywhere between $5,000 to $10,000 from a legal fees’ perspective, while the equity side is going to be just one month alone for the drafting. The reporting that happens after you raise a Seed and a Series A is also going to be different. For a Seed Round, you’re still in the very early stages, so typically the expectations from the investors are that you are sending them a newsletter or an update, maybe, every month, so they know what’s happening with the business. On those updates, you can talk about the team; you can talk about progress, milestones,
revenues, metrics that you’ve achieved, maybe mentions made by the press. On the Series A, it could be once a quarter.