Raising a Pre-Seed Round

Beginning "Process"

"Process" is startup terminology for talking to a bunch of VCs at the same time. The ideal way to start this process is to have at least 1-2 super connectors who are willing to send intros en masse (shout out Molly Fowler). A great super connector for this purpose is someone who is well-respected, well-connected, and understands the fundraising process well.

Not all intros will convert, since the opposing side needs to accept the introduction. This begs the question, what does the ideal intro email consist of? It all boils down to urgency. Each intro email should get across the fact that your round is hot. In our situation, we had a few VCs preempt with offers prior to the round. Although we didn't manufacture this purposely, it worked since we were able to mention within our intro emails that our round was moving fast, and that we already had offers. So, almost everyone we were introduced to was very excited to try and get into the round.

Finally, remember that who you speak with at each firm matters immensely. Some partners are simply worse than others. For every firm, try to find an introduction to someone who deeply understands your vision and has a strong track record of successfully backing companies with founder profiles similar to you. Whenever possible, aim to speak only with the Managing Partner or General Partner of each firm. I overlooked this and consequently lost deals. Your partner also matters greatly post-investment. The potential delta in helpfulness between partners within the same firm is massive.

The process

Speed

Time kills all deals. People kept telling me this in the beginning, although I didn't understand what they meant until after. The VC world is remarkably small, so if executed properly, word of your fundraising spreads rapidly. You will begin receiving an overwhelming amount of inbound interest. I suggest ignoring most of it—you simply cannot speak to everyone. If your company remains on the market too long, VCs lose interest. If VC's pass on your company, word will spread, and devalue your company in the eyes of others. Additionally, if a VC knows your round is moving quickly, they'll prioritize you and abridge their diligence process.

The Pitch

Again, we neither had a deck nor a prepared pitch. At the pre-seed or seed stage, little matters beyond the CEO's ability to articulate ideas and tell a compelling story.

You should remove your co-founders from the process as much as possible. Obviously, if a VC explicitly requests to meet your team, make the intros. My co-founders are far more talented than I am, and we share deep alignment. However, even a closely aligned team will naturally articulate ideas differently. This variance in expression can easily confuse external listeners or, worse, create the impression that the team itself lacks clarity. You must create a unified vision, and this can only be done if one person is doing the talking.

Creating a compelling deck is incredibly time-consuming. Avoid creating one unless you genuinely believe it enhances your ability to tell your story. Regardless of your approach, ensure your "pitch" is grounded in clear first-principles thinking that is logical and easy to follow. Take care not to come across as a salesman. Be genuine. Several VCs who made us offers mentioned that it didn't "feel" like they were being pitched—although perhaps that's because I took 80% of first Zoom calls from a hotel bed. Who knows.

Understanding VC Value Props

Eventually, VC's will begin to pitch you. If this isn't happening, something has gone very wrong. Furthermore, between tier 1 and 2 multistage funds, and tier 1 seed stage funds, the value props are generally equivalent. Bringing on a Multistage fund allows for the formation of long term partnerships, massive signaling value to additional investors/customers/talent, and generally have access to broader networks. However, they prioritize securing significant ownership stakes to maintain leverage in future rounds. On the other hand, seed-stage funds provide early access to promising startups, and are deeply incentivized to help founders secure better terms for the Series A. One thing to consider here is signaling risk. If you take seed funding from a multi-stage firm and they don't lead your Series A, other investors in Silicon Valley will look at you like damaged goods.

Different firms will pitch their value to you in different ways. Make sure you understand their incentives as much as possible when assessing their words.

Some of the best founders simply want a VC that will give them money and fuck off. However, my team is young and inexperienced. So, I wanted a group that understood the granularities of enterprise DevTools sales, and the process of moving upmarket from Series A/B Companies. Furthermore, I wanted a great firm that represents the best enterprise SaaS companies, as this is what it takes to offset our inherent credibility issue.

I began to think about this mid process. I would recommend thinking about this prior, and tailoring your process to it.

Ending process

Once you shake hands with your lead, simply wait. Do not negate offers from other firms until after contracts are signed and money is in your bank account. Make sure you are comfortable saying "No" to everyone else who wants to lead. Phone calls are the optimal way of letting someone down. Also, you shouldn't let funds "participate" in the round if they usually lead. The rest of your checks, post-lead, should be follow-on funds and angels.

Miscellaneous

Round Size and Valuation: Raise however much you think you need. Only you understand your company's telemetry. Seed stage funds will try to convince you to raise less, at a low valuation. Multi stages wont really care.

Remember that capital is an accelerant—it enables you to move faster but also increases the stakes. If you move quickly in the wrong direction, you risk going significantly off course. I was confident that I was directionally correct, so I did not fear overcapitalization.

For a preseed + seed round, you should take between 10-20% dilution. You should aim to get the most powerful people on your cap table from the start. If needed, it's worth taking extra dilution to allow for this.

When should you raise: Your seed round should be raised at the point when not raising would be detrimental to your company. In other words, you should bootstrap for as long as possible. As for Series-N rounds, understand that if your company goes too long without raising your next round, you will be seen as damaged goods.

Surround Sound: Once you begin your process, funds will begin to message people in your network for references and thoughts. This opens a two way door. Whenever you a VC is being slow, keep in mind that you can "ping" them through this backdoor and tell them that you are moving fast.

Follow Your Gut: When you repeatedly hear pitches from VCs, everything starts to sound similar, so beyond background checks and founder references, trust your gut—go with the group that makes you genuinely excited to build a $100B company.

Sleep: Ensure that you are getting proper sleep during the process. I was getting 3-4 hrs a day. After a little while, this began to hinder my ability to have cogent discussions.

Leverage: Understand that if you are, in any way, compelling, VC's will want to fund you and you will thus have leverage. Utilize this leverage wherever possible.