There are probably as many different recommendations for how to close your seed round, as there are startup ideas. The following three steps are about as solid as you can get, as far as recommendations go. Like the author, you may want to take a look at a number of recommendations, and make your own top 10 steps list for fundraising.
3 critical steps to raising a seed round
I am a true believer in having a bulletproof process for raising money. When I first set out to raise capital for my company Loopd, I did not have a formula. I wanted to go out into the market with a precise plan, so I reached out to a few successful CEOs in my network. I asked each one, “What were 10 steps that you followed when raising your last round?” After reviewing several models, I created my own. These aren’t hard and fast rules, but rather tips and tricks that I learned firsthand.
Below are the first three steps that I used to raise my round.
Find a lead investor
The most important step to raising your seed round is finding your first investor. I’d like to call this investor your lead. Your lead investor should be a super angel who has a large network, a respectable reputation and a burning passion for your company. This is the hardest but most crucial step.
Your lead investor will help accelerate the entire process, so take your time and make sure you’ve identified the right person. They will not only set the terms for your round but will also share the round with their personal and professional networks.
Define the terms
You and your lead investor should agree on a structure for your round. For most seed deals I would recommend using a convertible note. With this format, you don’t need to set a valuation for your company. You can protect your investors with a cap and reward them with annual interest.
My first convertible note had average terms for a Silicon Valley hardware and software company. We had an interest rate of five per cent, no discount and a US$4 million cap to protect our initial investors.
A convertible note is a very fast process but it doesn’t create real value for your shares until they completely convert. By contrast, a priced round is a simple format that involves a real valuation for your company, based on the price per share and the number of shares issued for the round. This structure provides complete transparency for you and your investors, since they will be buying a number of shares based on their price.
A priced round will take longer to establish the correct paperwork, will cost more in legal fees and, in my opinion, is only worth it if you can receive a justified high valuation. I would recommend aiming to give away between 18 percent to 22 percent equity in your first round.
Create a dream team list
After securing the terms with your lead investor, make …