Raising your first round? You're not alone... (article re-written because first version missed 'reality')

I decided to re-write this article.

The first version was one I published on a travel day while juggling two grumpy kids. It went out in a bit of a rush. And it fell short.

I wrote it to share what we've been learning but I missed the human side of it.

Because the reality is that trying to raise your first round SUCKS. It is brutal.

Unless you or one of your co-founders have had investor backing before and did ok for those investors, or your family / friends have really deep pockets, then the truth is that it is awful.

I also realised on a call today that some of the most awesome advice I heard about fundraising wasn't included in v1. These are some of the more unconventional ideas that you're less likely to find on another blog post.

So... some early fundraising 'hacks' we were told that might be useful for others:

• If you're looking for angels, don't let a call go by without asking what their standard cheque size is (don't shy away from asking this!) and ask for their permission to keep them in the loop as you pull together your round - as well as the obvious, that now gives you the ability to say on the next call "we're talking to x and their standard investment is y" - builds credibility and a feeling of a snowball.
• Always ask for intros - most angels have people they've invested with before or a network of other people they know who invest - especially if you don't have a strong personal network of potential angels, use theirs.
• I spoke with one founder who got accelerated traction with angels because he got a celebrity investor in early (offer discounts on the valuation or anything else that might help, but also give them lots of opportunities to fall in love with you and the problem you're solving) because other people really wanted to say they invested alongside that celebrity.

Some of the more 'conventional' stuff we've learned:

• It’s emotional - there are a lot of hygiene factors but ultimately you need to find a way to trigger fear and greed - fear of missing out and belief that you could be at the start of a crazy hockey stick that will deliver massive returns. I personally struggle with this because it feels a little inauthentic but, until we can change the game, we have to find our own way to play it.
• In the “hygiene factors” the key thing is to tell a really clear story - generally the simpler the better - and the best way to do that is to tell it lots and lots. I think 'stealth mode' is a hindering factor here. I personally think you should share your story to as many people as possible, as often as possible, because it will make the story better.
• Some VCs say they invest pre-seed but, in the UK at least, we’ve realised that these are generally not the first money in.?
• If you’re raising from individuals, the UK equivalent of a convertible note (an Advanced Subscription Agreement) is worth a look but be aware that HMRC now expect a long stop date of 6 months, meaning you better get your VC round in before that date or risk converting the agreement at the worst case for the start-up.
• Grants haven’t been a focus for us but they are worth a look, especially if you are at the leading edge of innovation, but they take a long time to put together, you often have to wait quite a long time for answers, and we hear that most people fail the first application. Worth seeing if you can get introduced to a grant writer, especially one that is willing to work on a no-win-no-fee basis.
• Some accelerators offer to be the first cash in but just keep an eye on your equity - as a rule of thumb you shouldn’t give away more than 20-25% by the time you get to seed (see a useful post here - please add any others in comments).?
• People will rarely say “no” - when they do and give you their reasons then that’s actually a gift. Most of them will just say that you’re too early or they want to see more traction. More often than not, that’s just a “no” you can’t learn from.
• VC money isn’t right for every business. They’re in it for the crazy hockey sticks. There are other ways to get your business off the ground and there are lots of awesome businesses that wouldn’t be right for VC.
• “How much” is more art than science - if you’re looking at angels / friends & family then it’s however much you need to get you to a pre-seed, this might be ￡50k or under but large angel rounds go as high as ￡500k.
• You have to kiss a lot of frogs - you'll get a lot of rejection - that's normal. And it's normal that it is really hard. You just need the first one to say "yes". Chin up.

The resources below are still brilliant - so I haven't changed this part.

John Spindler at Capital Enterprise does a great session on whether or not VC funding is right for you and what other options there are. https://www.youtube.com/watch?v=g_FFKyY6LBU

Seedlegals do a brilliant overview of convertible notes? https://seedlegals.com/raise/raise-before-a-round/ on this topic and also is the best place to manage this process using their SeedFAST and SeedNOTE agreements.

SeedLegals is also the best place to get your SEIS / EIS approval... must do for UK start-ups because it makes the funding landscape better for early stage investors and so you can often lead with "If you invest ￡50k you're guaranteed back at least ￡25k or more if the start-up doesn’t? work... so really you're risking just ￡25k for X% valuation discount and y% potential equity of a potential Rocketship!"?

One of the more “left field” options we’re looking at is linked to web 3.0 and the creator economy…funding options in this space feel like they are changing fast and we’re starting to research a piece on tokenisation and launchpads like the various Bluezilla ones… would love to connect with anyone who has already started to explore it or who is interested in exploring it.