Raising a seed round 101 | Lenny Rachitsky

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Original article

https://x.com/lennysan/status/1836127792054047144

Key Takeaway

For entrepreneurs: Before raising a seed round, ensure you have a clear understanding of your business needs, a strong conviction in your product, and a well-planned fundraising strategy to maximize your chances of success.
For investors: It's crucial to evaluate seed-stage companies based on the caliber of the team, the size of the market, and the strength of the early product, while also considering the potential for long-term partnership and value addition.

Summary

The article "Raising a Seed Round 101" by Terrence Rohan and Jack Altman provides a comprehensive guide for entrepreneurs on how to successfully raise a seed round. It covers essential topics such as determining whether to raise venture capital, understanding what to prove to investors, calculating how much to raise, and navigating the fundraising process. The guide emphasizes the importance of planning, researching investors, preparing persuasive materials, and building social proof to maximize the odds of raising a great seed round.

Insights

Determining if venture capital is right for your company: Consider scale, dilution, and funding needs. Venture capital is suitable for companies aiming to grow massively and are okay with selling off 10% to 20% of their company.
Proof needed for investors: Show commitment, work done on customer development, and a clear expression of your thesis. Conviction in your opportunity is key to convincing investors.
Calculating how much to raise: Aim for a 24- to 36-month runway with a 25% buffer. Typical seed rounds are $2M to $4M, with a post-money valuation around $20M.
Seed round sizes and compositions: Rounds can be structured with a single seed fund, angels, or multi-stage VCs. There is no one-size-fits-all approach.
Maximizing fundraising success: Plan your raise, research investors, prepare well-crafted materials, get powerful warm introductions, practice your pitch, and build social proof.
Talking terms: Focus on post-money valuation and whether there is a board. SAFEs are common for speed and simplicity.
Choosing the right investors: Vet investors by talking to other founders and assessing their ability to add value and trust.
Announcing the fundraise: Consider whether announcing can help with credibility, recruiting, or addressing current challenges.

Implications

Strategic planning: Entrepreneurs must strategically plan their fundraising process to maximize success.