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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?

#121

Post by fauigerzigerk »

FreakLegion wrote: post #111
fauigerzigerk wrote: post #102

Earlier quoted context omitted.

I'm not sure I understand. Are you saying that a down round after having raised at a "silly" valuation is worse for founders than a seed round at a terrible valuation? The only way in which this can possibly be true is investor psychology. In purely economic terms, having raised equity capital at what turns out to be a "silly" valuation is unconditionally good for the company and its founders. The company isn't off t…

> Are you saying that a down round after having raised at a "silly" valuation is worse for founders than a seed round at a terrible valuation? Raising at a terrible valuation isn't the alternative. It's easy enough to think through the mechanics of a down round: * Why would a company accept a lower valuation at all? Desperation. They need the capital to continue. * Is a desperate company going to get good terms? No,…

I don't disagree with you on the negative effects of a down round. But I'm unconvinced that it's worse than having to raise seed funding in a down market.

If you previously raised cheap equity capital (i.e at a high valuation) you have presumably used that money to create something of value (a product). Never having had that opportunity is strictly worse.

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

#122

Post by dahart »

kenneth wrote: post #93
dahart wrote: post #88

Earlier quoted context omitted.

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 h…

> 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. Entirely disagree here. I know lots of bullshit investors with big funds, and lots of serious investors with tiny funds. In fact, newer fund Is with a few million in capital will often be the most helpful and serious investors. (Disclosure: I am a seed VC, though I am no longer i…

Thanks, I was worried my sample size is too small. Do you have suggestions for identifying these so-called bullshit investors?

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

#123

Post by xyzzy_plugh »

alasdair_ wrote: post #108
xyzzy_plugh wrote: post #86

Earlier quoted context omitted.

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 wh…

> I'm not sure in what universe an unfavorable round is worse than insolvency. It’s worse in any universe where the choice is between insolvency now and insolvency later, because “later” can mean wasting a lot of time and burning bridges with investors that may end up funding your next business instead.

I chuckled at this. If it's a waste of time for you to be paid and to pay your employees...

If you think what you're doing is a waste of time, you can always leave. If it's your company, you can forfeit your shares. Why throw everybody under the bus? This is wildly irresponsible.

And burning bridges... I've never heard anything so funny. As if the feelings of investors ever really matter.

It takes a special type of entrepreneur to burn a bridge by taking an investor's money. Snubbing an investment is one thing, but taking an investment and using it as intended in good faith should never result in a burned bridge. Investors are typically understanding of changes in the market. It takes a party acting in bad faith, in which case not doing business with them in the future is reasonable, but that truth is applicable generally.

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

#124

Post by forstmeier »

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…

Could something like Automated Capital, a experimental side project I'm working on, reduce the turnaround for the initial due dilligence?

http://automated.capital/

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

#125

Post by forstmeier »

lpolovets wrote: post #73

(I'm a seed stage VC.) In general, seed stage is less affected by the recent downturn than later stages. Which makes sense, since the time to exit for a seed stage company can be the better part of a decade, so today's macro climate has less impact. A few tips and observations: - from what I've seen, most seed funds are still investing, although on average at a 20-40% slower cadence than 6 months ago. On the other ha…

The focus on revenue is definitely a paradigm shift for the current environment. It's part of my hypothesis behind Automated Capital (http://automated.capital/).

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

#127

Post by forstmeier »

I feel like focusing on building revenue should be the focus of pure SaaS founders and then reach out to investors to leverage growth - something that can be done more easily once they've hit "proof of market". That's part of my hypothesis behind Automated Capital.

http://automated.capital/

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

#128

Post by dopeboy »

jaxr wrote: post #83
candiddevmike wrote: post #37

Earlier quoted context omitted.

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/0LNQ…

By this logic, all startups that have achieved PMF have only done so via word of mouth / organic growth. This is false.

There are a class of startups that do grow this way to PMF (Dropbox, slack- typically multiplayer tools). The rest do so via traditional sales and marketing (mulesoft, launchdarkly - enterprise saas).

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

#129

Post by ghiculescu »

jw1224 wrote: post #38
ghiculescu wrote: post #36

I do early stage (first check) investments in companies using Ruby on Rails. We primarily look for founders with a long term view who will be fun to work with (not nerds). Feel free to reach out, details in profile.

If anyone has a similar investment philosophy for Laravel-based companies/founders, I’d love to chat too. We’re looking to raise investment at the moment, and this kind of ethos really resonates with me.

You should add an email to your profile so people can contact you about this.

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

#130

Post by fitzrocks »

murukesh_s wrote: post #100
fitzrocks wrote: post #80

I raised a seed round in March 2020. The market later in 2020 + 2021 went kinda haywire, but between March and July 2020 it was pretty rough out there. We started fundraising a week before the country went into lockdown from COVID-19. I wrote about it here, which I recommend you read: https://www.freshpaint.io/blog/anatomy-of-a-seed-round-durin... Some additional thoughts ~2 years later: 1. Wait if you can. Even just…

>We did YC as well. Did you do YC before seed or after seed? If you raised after YC, aren't you also not qualified to give advice? From what I understand getting into YC is guaranteed to put you among the top while trying to raise.

We raised after doing YC. Why would being a YC founder disqualify someone from giving advice on fundraising in a down market?
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