Mastering Pre-Seed/Seed Funding: Essential Steps for Fundraise Success
Founders embarking on their fundraising journey in the early stages of their business face a dizzying array of factors to consider. And each one can have a significant impact on not just your chances of raising, but also in the choices you can make in future.
The reality is that the funding ecosystem is a crowded and competitive one, with talented entrepreneurs vying for attention left and right. Successfully engaging and closing with investors requires the keen attention to strategic positioning, targeting, relationship building and realistic expectations – as well as a healthy dose of determination.
Potential investors will be looking for not just what makes you and your idea unique, but also evidence that have the skills and instincts needed to take your business forward. Entrepreneurs need to be able to demonstrate these skills throughout the process, from the projections in your pitch deck to the way you take feedback and set terms.
It’s a lot to take on for any founder, especially those going through the process for the first time, when you’d rather be focused on running your firm. Floww’s platform is designed to take away the stresses of raising capital; here we explore some key steps in the pre-seed and seed fundraising process where founders can maximise their chances of a successful raise and set themselves up for future growth.
Engage your existing investors early
The first step in any fundraise is to make the most of the assets currently available to you. While a funding round is a valuable opportunity to court new interest, your existing investors should always be the first port of call, for several key reasons:
- Investor consent: The first step is to get your investors’ permission to raise. As partners in your business, they will usually have a formal say in major company decisions – the scope of which is defined at the point of investment – including when and how you can take on additional capital.
- Pre-emption: As they may wish to protect their existing shares from dilution, it’s very common for existing investors to have the first option over any new shares issued before third parties are consulted.
- Advice and positioning: Existing investors can provide valuable feedback, help you shape your positioning and help you understand the mindset of new investors to ensure your materials are robust and market-ready.
- Networking and access: While there is a strong element of competition, investors also work together. A personal recommendation from an existing investor to a new firm or angel can be one of the most impactful ways to start a new relationship.
Don’t neglect your legal foundations
While you may have your eye on the valuation and capital amount, funding also requires a keen eye for detail when it comes to legal requirements.
While these can feel like a box to tick on your way to future-unicorn status, the legal documents that outline the terms of your raise are not only necessary for a successful round, but play a key role in shaping future ones. These documents form the legal foundation of your company, dictating future control over your board, the terms under which you can raise future capital and your future options to grow and expand.
Investors will want to see demonstrable attention paid to these processes, and may have questions about why you’ve structured them in a certain way. It’s also essential that you take the time to understand the key details of the terms set down – for example, being aware of any terms that might deter future investors, such as the right of first refusal.
Be realistic with your valuation
While it can be tempting to set your valuation higher in the effort to raise as much as possible, this can actually harm your business in the long term.
- Especially at pre-seed and seed stage, it’s important to set a realistic share price which leaves room for future growth and makes shares accessible to potential investors.
- Setting a high share price early on can act as a deterrent to potential investors who may not consider your business worthy of the figure or doubt the rationale behind your numbers.
At the pre-seed or seed stage, your valuation will be based on projections regarding your market potential, giving founders more leeway in setting valuation. This is where advice from existing investors and fundraising experts can be invaluable in setting realistic expectations.
Creating a purposeful pitch deck
Investors are cautious by nature, meaning they will only follow up opportunities that they feel they can trust. This makes it crucial for founders to articulate their plans clearly and transparently.
A well-crafted pitch deck will emphasise detailed plans for funds allocation, such as hiring, technology development, and finding product-market fit. It’s not only about showing where the money will go but demonstrating an awareness of the questions investors will be asking.
- Founders need to find a balance in communicating this information; too much or too little information can be a red flag, turning investors away.
- A realistic understanding of the company’s strengths, weaknesses, competitors, and market risks, coupled with well-prepared answers to potential queries, fosters a sense of confidence and connection.
Your spending plan should be a logical extension of the challenges and opportunities outlined elsewhere in your pitch deck, with the funds you raise being assigned to the cost centres in appropriate volumes, time frames and with contingencies for how you can learn and improve on your strategy as you move forward.
This also requires being open to feedback – clear communication and a willingness to negotiate on various aspects of the business, including spending, hiring and go-to-market.
Keeping your fundraising journey on track with Floww
When raising a pre-seed or seed round, founders need to keep a wide range of plates spinning, managing documentation, pitches, communication and planning, and revising all the above as they go.
Floww is designed to streamline the fundraising process, centralising core materials including legal documents, investor details, pitch materials and cap table on a single platform. Founders can track and manage their fundraise more efficiently, with expert advisors on hand to guide the process to close faster and on your terms.
If you’re a founder that’s ready to raise, apply to Floww’s fundraising programme today. Discover how Floww’s platform simplifies the raising process while our expert deal team creates your investor-ready fundraise strategy.