Founders’ Edition: What VCs Won’t Tell You About Raising Seed

Name Tim Shieh Platform Associate at Pillar VC

No matter how much preparation you do, raising capital for the first time can feel like a blackbox. When should you really approach VCs? How do you create interest and urgency? What should you do if you get rejected for the 30th time? 

No one understands the world of fundraising better than a founder who has done it before. We invited a group of experienced leaders to share their stories, experience, and insider tips with us about how to raise a seed round. 

Below, we’ve included advice from Andrew Lau (CEO, Jellyfish), Janet Comenos (CEO, Spotted), Dave Balter (CEO, Flipside Crypto), and Helen Adeosun (CEO, Care Academy). Learn from their biggest mistakes, understand whether to optimize for valuation, and discover how to build relationships with VCs. 

Looking for the full rundown on how to raise a seed round? Check out our full guide and other resources here.

Start building relationships well before you are actively raising, but tread carefully.

A common question we hear from founders is, “When should I start raising? Is it ever too early?” The answer is nuanced.

"VCs are trained to think about the 1000 reasons something could be a 'no' versus the one reason it could be a 'yes'. If you’re meeting with VCs before you’re ready to raise, make sure you know what you’re stepping into."
Dave Balter
CEO at Flipside Crypto

Most importantly, make sure you’re intentional about how and when you’re building relationships with VCs. Helen Adeosun compares building relationships with VCs to dating –– even when things are casual, every interaction leaves an impression. 

Even when things are casual, every interaction leaves an impression.

Don’t forget that you are interacting with people; be conscious of getting to know someone as a human, finding touchpoints that will strengthen your relationship over time.

"Seed investments are romance-driven. At some level, investors are making gut decisions based on how they feel about a person."
Andrew Lau, Jellyfish
Andrew Lau
CEO at Jellyfish

One of the most effective ways to start to build a relationship with an investor is outside the context of a formal fundraise. Pre-pandemic, it was easier to find serendipitous ways to cross paths at events, conferences, coffee shops; now, you have to be more purposeful. Think about engineering moments and interactions that might have happened organically before. Share an article about a topic you’ve discussed with this person in the past, send them another investment opportunity that might be of interest, set up a brainstorming session to get their thoughts on something you’re thinking through –– all well in advance of a formal fundraising round. 

The bottom line: strong relationships with VCs, especially at the seed-stage, are invaluable, and they take time to bloom. Invest in building relationships prior to your raise to avoid a cold start when you really are ready to raise capital.

Optimize across multiple dimensions, as much as possible.

Two important considerations founders confront when raising a seed round are valuation and ownership.

Ownership matters in more ways than one.

“Part of building the relationship is knowing who you are marrying –– your cap table is your marriage,” notes Helen Adeosun. “As a woman entrepreneur and a woman of color, I optimize for as many at-bats as possible. As someone who has now been through several rounds, I’m optimizing for who’s sitting at the table.”

"I think a lot about equity and access. Ownership at the end of the day matters in more ways than one –– when it’s all said and done, do you have a level of presence and choice? At exit, will it be a material difference from a wealth standpoint? These needs will be different for everyone, so you need to consider what’s right for you."
Helen Adeosun
CEO at Care Academy

One sure way to evaluate if an investor is treating you fairly is to understand the terms on your sheet. Pillar Partner Jamie Goldstein created this term sheet grader to help you analyze your term sheet.

Optimize for value-add, and reference check your investors.

Another common question from founders is whether to price your round. Dave Balter notes that while your investors will ultimately set the price, it’s incredibly important for you to know how much you believe your company is worth. You should have a number in mind that you’re targeting. While you should be careful to share a target valuation with VCs that boxes you in to a specific, you also want to understand whether you’re both thinking within the same broad range.

Be cautious about setting expectations that are still high. Janet Comenos notes that optimizing for the highest valuation early on could make it difficult to meet investors’ expectations down the road. While you might find an investor who is willing to invest at a seemingly absurdly high valuation, it may not be in your best interest. Think in doubles. Your investors will expect you to at least double your valuation with every subsequent round –– you’ll need to be able to hit the milestones to justify that increase. every subsequent round should be doubled for dilution purposes.

"Don’t get sold on things you never needed in the first place."
– Andrew Lau,
CEO at Jellyfish

Beyond valuation, Andrew Lau cautions founders to consider what value you’re getting from investors, beyond just capital. Investors may try to wow you with bells and whistles they can bring to the table; do these really matter for you? Carefully consider what you’re optimizing for with each new round –– capital, connections, talent, experience –– and don’t let promises of other support distract you from the value-add you’re really seeking. 

For this reason, reference checking is also an important part of your diligence on the VCs. Don’t just trust the names of people the investor recommends; find your own people. Andrew shares the critical considerations: How did the investor behave when things got tough? What deals have they done in the last few years, and are they in your stage and sector? Do they value you, as a founder?

As much as you can, optimize to be at the intersection of these points.

Learn from other founders’ mistakes.

Janet Comenos shared a regretful experience where jamming in back-to-back investor calls left her ill-informed and unprepared when meeting with an investor –– a missed opportunity. 

1. Prepare for every individual investor call.

Don’t pack so many investor meetings into a day that you don’t have time to prepare for each call. How does your company align with their thesis or similar portfolio companies? Who are your mutual contacts? 

Remember to zero in on what will actually matter to each investor, and connect with the people who can help you get that message across. A positive endorsement from a trusted contact will go a long way in building credibility.

"Identify a small group of thought leaders whose perspectives matter to the investors you are courting, who have a positive opinion on you and your company. If you don’t already know them, get to know them."
Janet Comenos
CEO at Spotted

2. Use caution when sending your deck in advance.

If it’s still highly unclear whether an investor has genuine interest in your company, the group cautioned sending your deck in advance. Viewing your deck gives a reason to say no before the meeting, and might reveal information you’re not comfortable sharing unless you’re sure the investor has real intent. 

Instead, focus on getting a warm introduction to an investor from a strong mutual contact or founder in their portfolio that builds automatic credibility and trust, encouraging them to take the meeting. 

While there are different ways to manage time and expectations, the one thing you can’t do is buy back time. As deadlines approach, you run the risk of letting your round get out of sync, and it can become difficult to rebuild momentum.

3. Be realistic about your timeline, and manage expectations.

Take pride in your wins.

Most importantly, once you’ve raised your seed round, don’t forget to take a step back to celebrate this important milestone with your team. In an environment where founders are often beating their chests on social media about how easy it was to raise a round or how much inbound interest they’re fielding, it can be easy to forget that fundraising is incredibly hard. 

As Andrew Lau notes, “We should be applauding anyone who raises a seed round. People walk around saying things like, ‘I should have gotten a higher valuation.’ There’s survivor bias. We never talk about the people who didn’t get their rounds done. You’ve lived another day, we got to build the business, you should be proud of that.”

You lived another day and got to build the business – you should be proud of that.