This is the last part of my short series on our Remerge Seed round, which covers a quick summary and hopefully helps future startups.
Why were we able to raise $1M with just a 2-page PDF and no product? What were the key points? And can this be reproduced? Here are my thoughts and my recommendations.
- Experienced Team: I believe the team was one of the biggest success factors. Being able to offer 5 founders, who fit perfectly for the plan is not the standard for early rounds. Normally there are 1 or 2 founders, who have a great idea, but lack the personnel for execution. This is not a totally bad thing, as they normally need the early-stage money to be able to hire good personnel. But even then it is a big plus, if you have already identified good employees, who want to join you as soon as you close a seed round.
- Easy-to-understand Product & Model: To be honest, offering app retargeting is definitely not a “genius idea” – it’s obvious, that there is a market for this. But people understand this, and it is a known model from the online space. You “just” need to explain, what value you will bring into the market and why you can succeed against your competitors. If people don’t understand the customer need of your product, it’s hard for them to trust your approach.
- Network: Raising money is a people and trust business and we have some well-connected advisors on board. We – the founders – lacked in deep connections to the financing and business angel market, which is the reason why we have support in form of advisor on board. This is something I recommend to young startups, as it can be really difficult and time-consuming to pitch to unknown angels or investors.
- Lead Investor: Try to close somebody, who goes into the lead and trusts you. You might even want to give him better terms or conditions. A deal could look like i.e. if you are not able to raise the proposed amount of money by other investors, he will get then better terms.
- Legal Setup: Before we started to approach investors, we had already a shareholder agreement and personal commitment in terms of spent money. We had cliff and vesting periods defined for the founders and have reserved shares for future team members. This reduces the risk for investors.
- Artificial Shortage: Limit the amount of money to be raised. You can still raise it later, if you get high demand.
- Milestones: Why do you need the money? Building product? Extending the team? Internationalization? M&A? This should be clear to investors. It also relates to Artificial Shortage: If there is more demand for investment than you need, set new milestones. I.e. if you need the money for internationalization and get more demand, you might use the additional money for acquiring a company.
- Market: Understand the current market conditions for investments in general and in your vertical. What are realistic terms for your company to close? Without knowing them, it is hard to define what “fair” terms for your company are.
- Gut Feeling: In the end your team and you need to have a good feeling when closing a deal. If you have the inner feeling, that it is a bad deal, then look for alternatives. Therefore always plan more time for fundraising and create artificial shortage and send out deadlines for specific process steps. That way you minimize the risk for getting in a troublesome situation for your company.
I am not sure, how much this helps – in the end there are a lot of individual factors. But at least you get aware of the some relevant factors in the financing process. If you have any more points, feel free to share!