As an early-stage venture capitalist interested in enterprise SaaS startups, I often get this question: “What’s the minimum needed to secure pre-seed venture funding?”
Recently, we’ve seen investors move earlier—investing in startups that oftentimes are nothing more than an idea and a logo. Growth-stage investing is collapsing before our eyes, and it’s pushing more and more VCs toward early-stage startups.
This migration has been good for founders, but it’s also created an enormous amount of froth, competition and valuations that are, frankly, ridiculous.
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So, if you’re a founder looking to launch a startup into these favorable dynamics you might be interested in learning what exactly pre/seed-stage VCs consider the minimum needed to write the check.
The magic ticket
The first and most important thing VCs assess is the founder. Founders must have a unique viewpoint on a niche area of the tech ecosystem. That could represent a wide range of ideas, industries, etc., but it must be unique, show obvious value and be an executable vision. Even if your company is nothing more than an idea and a logo, the vision must be something that’s clearly articulated.
Founders must be able to share this vision in a way that is easy to follow, makes sense and has a clear path to scaling into a real company that adds value. Even if that roadmap is many years long, founders must be able to explain where they are now, what they need to get from point A to point B and eventually to points C through Z.
This roadmap should include expected hurdles, resistance points and expectations on growth and impact. For technical founders, this might be a bit easier because the product roadmap is easier to identify and build.
After assessing and believing in that vision, VCs will want to look at the founder’s background. Previous startup experience is hugely beneficial for obvious reasons, and network validation is a close second—especially for first-time founders. I’ve discovered that founders with extremely solid networks have other proven people who can vouch for their ability to execute. For first-time founders, this is essential.
Even once a VC is sold on your vision, they’ll want to assess your ability to execute. Having people who have proven their ability to do this in your corner is essential. If a VC sees someone they know is capable of building a company singing your praises and believing in your ability to operate on their level, they will invest with confidence. Quantitative metrics, industry expertise and experience can only persuade VCs so far; they rely heavily on the people they trust to signal which founders have the right stuff and which do not.
All of this can be surmised into the most important quality founders need to secure early-stage funding: storytelling. Before there’s a product and a sales team, there has to be a story that people can rally around. Oftentimes, VCs will be assessing the storytelling of a founder through the lens of a customer, other investors, employees and advisers. Can this founder convince all of these stakeholders that their vision is solid and that they’re able to deliver on the promises they are making?
This storytelling isn’t just product-focused either, it’s about combining the personal life experience of the founder into the ambitious vision and eventually tying it all into the product roadmap. Succeed at sharing that compelling vision and sprinkle a bit of network validation on top, and you’ve got a recipe for raising early-stage venture funding.
Marc Schröder is the managing partner and co-founder of MGV, and is focused on working with world-class tech entrepreneurs and establishing the MGV legacy. Before co-founding MGV, Schröder served as the head of global sales at the Maschmeyer Group and was an investor at Seed + Speed Ventures. Originally from the Netherlands, he grew up in South Africa and graduated with a law degree from Bertolt-Brecht University.
Illustration: Dom Guzman
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