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Ask HN: How to raise a seed round in a down market?

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Re: Ask HN: How to raise a seed round in a down market?

#81

Post by whitej125 »

pacarvalho wrote: post #49
whitej125 wrote: post #35

We just closed a seed a few weeks ago. At least in my experience... "new deals on hold while taking care of their existing portfolio companies" never came up. Honestly I don't even think things like the massive tech re-valuation in public markets even came up (at least not that I recall). The convos continued to focus on team, market and GTM. I will say that from early 2022 to mid 2022 - GTM increased its weight in t…

Any suggestions on where new founders should look to find seed investors?

For me, the best source of seed investor introductions (relevant firm and getting to the partner directly) was from other founders. And the best source of getting introductions to founders was, ironically, from seed investors.

Even having a small network on day 1 is enough to bootstrap but you need to consciously grow. And yes it will feel slow at the beginning.

Re: Ask HN: How to raise a seed round in a down market?

#82

Post by erex78 »

jjeaff wrote: post #58
nivenhuh wrote: post #41

Earlier quoted context omitted.

How often are the YC application cycles? I’m about to leave my job to work on a fashion startup with my husband. There are some technical aspects to the business that I am building into products, but my immediate focus is to get his clothing store online. I know the product(s) I want to build will be compelling, but my concern is not having enough cash to hire a small team. At what point is it best to apply? After yo…

You might consider pitching to https://amplify.la They are based in Los Angeles and I believe have had a few successful fashion startups. LA being a global fashion hub probably doesn't hurt. I have had experience with Amplify in the past and they were always helpful and not too pushy.

Second this, and not just for fashion. I went through amplify.LA at our geospatial analytics startup, Mapsense. The amplify folks were some of our best investors.

Re: Ask HN: How to raise a seed round in a down market?

#83

Post by jaxr »

candiddevmike wrote: post #37
scapecast wrote: post #34

Earlier quoted context omitted.

What’s the product?

Homechart, the all-in-one household data management solution. Keep your household in sync and have all of your household data in one simple app. https://homechart.app . Right now it's at this awkward stage where it doesn't make enough for it to be my full time job and I don't have the skills/budget to market it effectively. It keeps growing month over month via organic search traffic though, so I must be doing someth…

I don't think you hit product market fit, though. It should be pretty obvious. If you had, and the market was as big as you say, then people would be flocking in just by word of mouth. I would suggest to iterate on product, talk to your users, get some good metrics on usage, etc. There's great content about that at the YC YouTube channel.

https://youtu.be/C27RVio2rOs https://youtu.be/FBOLk9s9Ci4 https://youtu.be/0LNQxT9LvM0

Re: Ask HN: How to raise a seed round in a down market?

#84

Post by krashidov »

joschmo wrote: post #78
blobbers wrote: post #64

Earlier quoted context omitted.

2M for 8-10% dilution at seed? This seems ambitious, even in yesterdays market.

I would say $2 at $20M post-money was a very average round last year (I think the median from the top 50 seed funds was very close to this and average was slightly higher). I was hearing a lot of $3 at $30 and several $5 at $50s.

That’s insane. If you’re a founder and you own 20-90% of a 30m dollar seed stage company, you’ve essentially ballooned your paper net worth to a very nice number. A number that would be equivalent to a healthy acquisition. Obviously the founders can’t really dump those shares on the secondary market but it just feels weird for seed stage companies to be worth that much.

Re: Ask HN: How to raise a seed round in a down market?

#85

Post by joschmo »

pesfandiar wrote: post #76
joschmo wrote: post #21

This is an ideal time to raise seed money. Many funds have moved heavily down market away from the big Series B/C's of 2020/2021. You now have a lot of tourists at the seed stage who are obligated to deploy capital and even if it is at 10-20% of the previous rate, that's still five $2M seed rounds for every $50-100M series B/C that used to get done. You won't get a killer valuation like 2020/2021, but you will have p…

How do you reckon the market is for startups that have already raised at later stages and are profitable? Good time for M&A to consolidate market share?

That's a really interesting question as I rarely think of a company from pre-seed to series C as having profitability. If they have the cash on balance sheet to do smart M&A, it would only be worthwhile if the company had the human capacity to source, diligence, and integrate without compromising the core product. Integrating is the most important part of that because that's where all of the value is generated and tends to eat a ton of everyone's time. That's going to be series C/$20M+ of ARR at the earliest usually. Even then it's buying a team or niche technology, not a complete product/business/ So the answer to M&A is a yes with a lot of caveats.

Otherwise, if you are a profitable, late-stage company, why would you raise money at all? Either spend your profits down close to 0 to achieve business goals and only raise some money if you've got non-dilutive ROI (i.e. the margins on this new spend are superior or equal to existing margins in your profitable business and you are in land grab mode). Or just be comfortable with your current trajectory because of how well-defended you are financially. From a risk management perspective, founders should be able to live with going from $10 to $20M in ARR this year at break-even instead of $10 to $30M by burning $5-20M if it means your business gets to continue existing.

Re: Ask HN: How to raise a seed round in a down market?

#86

Post by xyzzy_plugh »

FreakLegion wrote: post #69
xyzzy_plugh wrote: post #54

Earlier quoted context omitted.

> Raise as much money as you can. In 2021, this was terrible advice. How so? If you raised a ton of cash in 2021, you should better equipped to ride out any economic downturn than nearly any other business in existence. Most businesses do not have millions of dollars in cash in a bank account. Sure, your valuation might be bonkers, but that's better than being kicked to the curb, and inflation will probably dampen th…

Obviously this is situational, but you expect a round of funding to carry you for about two years, less for Seed. When you raise at a favorable valuation, you have to grow into it, and the clock is ticking. Throw a collapsing market into the equation and suddenly your next round is looking decidedly unfavorable . There are a lot of early-stage startups out there right now that raised at silly valuations 6-12 months a…

Sure, but was not raising money a better alternative at any point? It sure doesn't seem like it to me.

I feel bad for companies with runways ending in the next 6-12 months, of course, but that's life. If they hadn't raised funds 6-12 months ago, they'd likely be in a much, much tougher spot.

> Throw a collapsing market into the equation and suddenly your next round is looking decidedly unfavorable.

I'm not sure in what universe an unfavorable round is worse than insolvency.

If you need to raise funds, you raise funds or die, realistically. No one knows what tomorrow brings. Anything else is trying to time the market.

If you didn't need to raise funds, but did... enjoy the privileged comfort of your war chest over the next few years.

Re: Ask HN: How to raise a seed round in a down market?

#87

Post by Mougatine »

joschmo wrote: post #21

This is an ideal time to raise seed money. Many funds have moved heavily down market away from the big Series B/C's of 2020/2021. You now have a lot of tourists at the seed stage who are obligated to deploy capital and even if it is at 10-20% of the previous rate, that's still five $2M seed rounds for every $50-100M series B/C that used to get done. You won't get a killer valuation like 2020/2021, but you will have p…

You could really raise money (millions?) in less than 3 days before? That sounds crazy to me.

Re: Ask HN: How to raise a seed round in a down market?

#88

Post by dahart »

HWR_14 wrote: post #72
ilrwbwrkhv wrote: post #10

This is a great time to weed out bullshit investors. Like BS jobs, some don't need to exist and this downturn is a great filter for them. The ones who are still investing as normal are the ones you should still raise from even when markets are different.

I'm thrown by what a bullshit investor is, or how we distinguish that from, for example, a lucky one.

Before you pitch, see if you can find out how often the investors actually fund something. Also find out if the investors are full time investors, and how large the fund is, how large the firm is. I could be wrong, but I’d guess a first-order rule of thumb is the seriousness of the investor is more or less proportional to the size of the firm & fund.

I don’t know if this is what parent was referring to, but my town has a seed fund that calls themselves “angels”, but they’re not full time investors and they have a low rate of funding anything, and when they do it’s for small amounts. My business partner liked to call pitching for them “doing dinner theater” - it was literally in a restaurant. They were fine people, but they had very little idea of how to identify a good startup, and so pitching for them was both difficult and fruitless - they also didn’t really have any good advice or connections to help. It was weird, but pitching for larger funds was way easier, the larger the easier in my limited experience. The goal posts were clear, the rejections were quick and easy and helpful(!), and they gave us real and practical advice, and btw told us exactly why we were asking for too little money.

Experience pitching will reveal some things about the different kinds of investors. Aside from gauging the group of investors, probably the only other good advice I have is go around asking a bunch of people what they think about an investor, you can glean a lot from learning about people’s reputations. (Note that goes both ways - investors talk to each other and you will have a reputation soon enough, so keep your record clean!)

Re: Ask HN: How to raise a seed round in a down market?

#89

Post by danielmarkbruce »

Find a great market, understand it in depth, understand what product will be extremely valuable, and a plausible way to get to market. Make some progress building the product and getting customers interested.

Make a nice pitch showing all these things. Make the pitch to 100 people.

Re: Ask HN: How to raise a seed round in a down market?

#90

Post by spoonjim »

rexreed wrote: post #51
spoonjim wrote: post #23

Earlier quoted context omitted.

> nothing to do with your actual business or business model or innovative technology or hand-wavy "disruption" or large addressable market size or traction I would take out "traction" from this. If a company has strong traction (that looks sustainable) it will outweigh everything else.

It's hard to prove counter-examples of companies that have had significant traction but were unable to raise money, because, well they were unable to raise money. The only alternatives are those companies who have had large amounts of traction, were unable to raise money, but ended up being successful anyways by bootstrapping or finding some alternate method. But it's not generally / necessarily true that companies t…

The traction has to be able to be turned into money -- a consumer "rate the celebrity" app could have millions of users but not really be investable. But I haven't seen any cases where an investor says, "They have real traction, that can grow at venture scale and at strong economics, but I don't like the founder." It's just extremely uncommon. Usually "dislike of founder" (with all of its biases) comes when you have to put a lot of faith into the company, not where the company has already proven itself. Of course -- investors can simply be wrong about the growth potential or unit economics or sustainability of traction -- but that's different.
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