6 Things No One Tells You about Raising a Seed Round | SaaStr Software Community

Hey, good afternoon everyone. It's great to be here. It's great to be in Barcelona. So I think we're the last panel of the day, so everyone's very, very welcome. So the topic of our panel today is six things nobody tells you when you're raising a seed round. So on the panel we have three great seed investors and they're going to dive right, we're going to dive right into it. So we have Zoe from Frontline, Carmen from Cocoa, and Reuven from Cavalry. So I'm going to kind of get things started. So kind of when we were talking about this earlier to grab my. So the first question we kind of wanted to kind of address was, you know, why seed funding? I think, you know, when we talked before the panel, we kind of came to the conclusion that expectations were very important. So my first question is to Reuven and I suppose it's what are you looking for? You know, what are your expectations of a company and of a founder when they come to you?

Yeah, I think it's very important to understand that not every founder team should take actually seed funding because there are different models a and there's also different expectations from investors, for example. And for founders, sometimes it can be a great choice to bootstrap for quite a while or actually for as long as the company is existing. And there are numerous examples of even billion dollar companies being founded like that. Right. You know, especially if you're on somewhat like in a profitable niche without much competition. Or for example also if you have a very unique technology that does not need funding. Yeah, but then comes the point and I think typically where founding teams say, look, I want to take on funding and that starts with the angel of the pre seed round. You know, it's actually the same term of the same thing where you go out, you talk to friends, you talk to family, you get feedback from the market and then somewhat organically you're offered the first check. So that means you get somebody else into your company, a shareholder. And if you get that, then ideally you get the person or that fund who will add value to you because you will lose somewhat of your independence. That person wants to have rights, maybe a board seat. So really make sure that there's a value add for this equity that you're giving away next to the cash. And the cash itself is then for you extremely useful. If you know certain repeatable metrics already in your playbook. You know, how to do sales repeatably, how to invest more into your technology, how to build out the core team can Be very early. But if you know that you need those funds in order to outbeat competition, then it's definitely for you the, the right means. And especially nowadays you want to take on funding very often because just, you know, the, the disruption cycles are very quick. You don't have 20 years often to build a big company, maybe five, maybe 10 at most. So this is why you would really need seed funding and then most likely more. Right.

And just to build on that. Zoe, so when you try and create alignment with the founder, what are you looking to achieve?

Yeah, it's a really good point. So I think just to build on what Reuben has just said, for me, one of the first things out of the traps is do you really understand what I'm thinking when I sit opposite you as you request kind of seed funding from a fund? And by that I mean, are you up for what this journey from my mind is going to look like? Which means building something super high growth at a pace which is actually quite relentless, has lots of ups and downs, has a lot of different stakeholders to manage, but where you understand that every, you know, time is precious because you need to kind of get ahead of your competition. So it's almost a mentality check in that the type of journey you're up for, for isn't something which is perhaps two or three years, it's much longer, it's to build something of truly huge impact. And a fund like mine is looking for, you know, we're underwriting to kind of at least 10 times the money that we're putting in. So I think it's kind of getting above it all and saying, if I got an offer for £10 million to this company, €10 million, this company, in a few years, would I take it? It's a great answer if the answer is yes. But it just means that, you know, sitting opposite a venture capital fund might not be, might not be the answer for you. Because that mentality of, you know, building a fast paced team, compounding over time is one that is, I guess, quite unique and that's what I guess I am looking for in those founding teams.

Yeah, and I think what. So he said, what Zoe just said is actually very important. You don't have to raise from ABC necessarily. And this sounds unsexy because according to the news, it feels like, like if you want to be successful, you need to race from a bc, but it is almost also a lifestyle choice and there's no right or wrong. Right. It depends what you want to do with your life and that, like you're the only one to know. But you need to think about B.C. as like a highway if you can take it or not take it. And by the way, you can get very far without taking the highway but if you take it, you cannot get out of it, so to say. And you need to drive very, very fast. And there's series of expectations that come with that. So it is that pre raising a seed you really need to think about what do you want out of this business, what do you want out of your life and then choose one or the other. Right. And again you can get super far, make tons of money, be very successful with ADA vc it's just a different path or a different road to get there. So that's something to really think about.

And Zoe, we talked a little bit earlier about other forms of kind of financing and other options. I mean, you know, bootstrapping, you know, raising, raising other types of finance. Maybe you could kind of take us through your thoughts on that.

Yeah, of course. And to Common's very good point, it is, it's a choice. You've got many, many choices. And I think the way to think of your business is equity capital is obviously been super, super cheap in the last couple of years, but it is by no means the only source of capital out there. And you can start right at the very bottom with am I building something which has got quite a high level of research and development? Am I hiring PhD students? Does the country I'm building in offer grants? That's completely not free money but it's non diluted capital. So there's this grants out there which absolutely be looked at. They might pay some people's salary, they might cover your R and D cost, there might be some tax credits in there. Then of course there are loads of different forms of debt. Now debt works obviously so much better than equity in a number of ways. So when you are taking equity dollars and I say this is the see like I would hate to think that you were taking our money to you know, hire out a plan or buy some machinery. It's actually typically, you know, reinvesting in headcount and investing in building that product. Once the product is built and you're selling it and you have a revenue stream which may be a SaaS business model, it may well be E commerce. Of course there are tons of players in the market and startup scale ups who are specifically there to finance some of those revenue streams just in the same way that there are working capital facilities. So if it's just a timing point about like your creditors and debtors. There are other places where you can get much cheaper capital and you're not having to give up parts of your business. I'm putting myself out of a job. But that is all to say that, you know, alongside equity sits other things. And just to name some that are in Europe, there are obviously Clearbank, Pipe Cap, Chase, Wayflyr, there's lots of options if you do have this kind of repeatable revenue stream and you have bootstrapped to that stage. And so I think just to like round it all off, you should sit there, you should say, what is my mentality? What am I up for building? Do I want this type of lifestyle? And all that comes with that, which is both upside and potential, Some like, you know, ties and if I do want that, what's the best way to build that? And that might well be with equity and it might well be with forms of debt and also grants.

Really good. So, yeah, we're just going to move on. So the next kind of point is when to raise a seed round. So you've decided to raise venture funding. I suppose the question then is when do you do it? So reuven, when do you think is the optimal time to raise a seed round?

Well, I think once you've decided that you want to have venture funding, then I think it's always a good time to raise money. When you actually can raise money. You know, it sounds somewhat easy and obvious, but when, you know, raising money is not like as if you set up for like a rendezvous with a VC and then say at the end you make it. You know, often it just happens in a way that you start a conversation, you go out in the market and you learn that VCs are interested in your business and what you can do at the same time. And you know, this natural process you can actually stage and you shall stage at a certain point which is more towards the SEAT or series A and post rounds. Once you, once you know what your VCs expect. Yeah. What kind of metrics they want to see Typically in a seed round, it's, it's little bit, you know, you have to have early signs of product market fit. You have some customers, if we talk B2B, not many, rather have your customers engaged. You have to have a big market, you have to have a great founding team. Anything where a VC actually says, look, when I invest, I can pay back my fund ultimately X amount of time. So you also have to understand how big is the fund that's coming in. They want certain ownership, but Ultimately it's about that for a vc. And whenever the momentum is right, whenever you get offers, I would say go down that route.

And I suppose the second question is obviously in the current environment, Carmen, is now a good time to raise a seed round?

It's a very good question. I would say also whenever, like when to raise, you can judge, but when you're raising, you're raising. That is the important thing as well. It's like when you decide to go, go. And we can discuss later how the process looks like but the market right now, we've discussed this a lot earlier, feel free to jump in. And it's a bit difficult to tell at seat because growth for sure has been impacted negatively. Reality is we can say at seat things are still happening and like we're still investing into, into companies and you see still great deals probably. And in full transparency there is less velocity in the deals. Like they are slower because people are taking more time to think whether to invest and to build a conviction and they're being more picky and the bar is higher from an investor perspective just because there is such uncertainty in the market that their incentive to the to invest is toned down a little bit versus what it was like six to 12 months before. Right. But again, deals are getting done all over the place and still at like healthy, healthy valuation. So what I would say is like if you are ready to the earlier point to go out and raise, go out and raise because the good founding teams and the good opportunities are still getting funded. Now be mindful that it might take a bit longer. Be mindful that dilution levels are adjusting. So the kind of below 15% dilution that we were seeing a few months ago are now very, very rare. The sizes of seed rounds are also adjusting. So 5 million at 25 are now like sort of unicorns. And you probably need to be a second time founder that like exited his or her company. So just adjust a little bit the expectations and think about how much money do I need to get 24 months of Runway and what are the terms to build to like to get the best partner. And I think if you have something that is valuable, you're like a strong team. You're going after a great market opportunity and your expectations are reasonable to create win win situations with investors. Deals are still happening.

Right. Does anyone else want to add to that in terms of how you're seeing things at the moment?

Zoe, listen, seed is a wonderful place to be because seed will always exist. Seed has to exist. We absolutely want to invest in the brightest and most exciting and crazy people of the future who are building the future. But I think all of common points are valid, which is just the one thing that I would take away is that the market absolutely exists, deals absolutely happening. But you cannot put your head in the sand and think that 2021 is carrying on the growth markets. The following rounds they have almost stopped investing. Seed deals are still being done, but just being done with a bit more reflection time and the right pace I would say. So for me timing is all about what are you de risking between now and the next stage? Thinking that that will take two years and there's no founder who I have met who said they wish they took a little bit less and they did things with way quicker than they expected. So perhaps as much buffer as you can get on that 24 months Runway and you tell the story, whether it's pre product or pre revenue, about how you get to that next important milestone and what value you are then compounding onto your business and why the next investor will be excited because you will have taken this level of risk off the table. And if you can tie that together in a great narrative, then of course you will be getting investors excited at both the pre seed and seed stages.

Great. So I think we're going to move on to our next question, I suppose. Can you raise, can you raise a seed fund, a seed round remotely? You know, I'm, I'm from Ireland, which is, you know, you know it's a smaller market. So do I need to get on a plane, do I need to go to London or can I do it on Zoom or should I go to San Francisco? How should I do that? So Carmen, maybe you could, you can take me through that one.

So to the question, can I race remotely? Yes, 100% definitely and everything. I think Covid changed the rules of the game there. At the beginning of COVID we were all wondering whether we would get comfortable funding teams just meeting them over soon. 100% happening. I've done it in the past few months. No need to take a plane, no need to be in disadvantage with local teams in London. Having said that, I would say if you can meet in person, like if they happen to be in your city, go meet in person if you're, if you're good at that, but it's not needed at all. And I think one thing I would add to that actually is it's not only that you do not need to live in London, you are not, you do not need to live in SF to raise around also, you do not need to be a Delaware corp. You do not need to be necessarily a UK corporation for that. That has also completely changed. So US funds do not make you switch or flip anymore, only YC does. And that's like the only requirement. So on that, I think when you even take a step before and think about where do I incorporate my company, think about practicalities of where is it most efficient because of where you live, because of the costs. Right. Delaware is three times as expensive as having a UK company because auditors and accountants and lawyers are three times more expensive. So think about it from a practical perspective, what's the best for your business? And optimize for it as a business decision. Because from a fundraising perspective, it doesn't matter. Like there, I mean, Spain and from Spain. Spain is notoriously annoying to close around in Germany as well. But still you see US funds going through the whole hustle. It goes back to if the intrinsic value of what you're creating is exciting, people will go anywhere to fund you. So it's never the kind of deal breaker or deal maker. So just optimize for it as a business commercial decision.

And I suppose my next question is, you know, in the past there was a kind of a journey that some founders went on where they left Europe, they moved to San Francisco, they raised funding from people like Jason and were very successful. Do you think, do you see that happening again post Covid? Or how do you see the new world? Are US funds investing from SF at seed into European companies? And how is that working out for founders? The question is to Reuben, I suppose.

Yeah, I mean, you know, as Carmen just said, US VCs, they flocked already to Europe. And that can be via franchises for a long, long time, like XL for example, that can also be via, you know, just newer subsidiaries, Sequoia for example. And what is important to understand is that typically the US VCs here in Europe, they operate somewhat on their own, right? So if you raise from them, you raised from them, and if you want to raise from their parent or the big sister in the States, then it's a different ball game. So there are situations where, and this is happening often, where you would then have to convince and your partner of the European franchise has to convince her partner in the States and the IC investment committee to basically back you further. And this process actually can take like two or three months. I mean, we talk existing relationships and so be, be prepared. And you know, in this regard, I think it's extremely important for European founders, especially the ones more on the technical side of things to learn how things work in the States. Because I think all the Americans here, they can subscribe to that. In terms of storytelling, the Americans are just one or two steps ahead of us Europeans. And I'm German, so the Germans are not that good in storytelling. And some other friends, we talked about that before as well today. So be prepared. And therefore it could be a very, very wise thing at one point maybe if you are like, post seed Series A is coming up, you maybe really want to take a trip to the States, meet up some friends, you know, you meet along the way. If not just go there solo. You know, people by then who can introduce you, breathe the air, learn how things work, just hang, you know, it doesn't have to be a year, go for a week, two, three, whatever you fancy. And ideally, you can already find maybe even more customers testing the waters over there. Get some first testimonials so you can do many, many, many things. Not only learning when you go over to the States. And maybe maybe one thing though, on the closing, typically when you close around, typically a VC would like to see you at one point. And you should also want to see the VC at one point because you're entering sort of like a marriage. Right. And yes, you can do it virtually. There are all kinds of nice dating sites out there, but ultimately we are in a real world and you kind of have to see if you get along, enter reference calls on your VCs a lot and also allow them to do one or two on you.

Great. So, yeah, we're going to keep moving. So the next topic we're going to kind of COVID is how to structure my cap table. So Zoe is quite passionate about this. So maybe, Zoe, I'm going to ask you, what should I, who should I have on my cap table? Should I, you know, what's, what's the dream team that I should be looking for? And, you know, how should I approach that question?

No, I'm joking when he says passionate. I promise that I have other hobbies other than thinking about structuring a cap table. But in all seriousness, so if I was a European founder today, raising a seed round, I would absolutely want a European seed fund whose fund totally is used to investing in businesses at my stage, is used to all of the problems, the ups and downs that comes with it, has a very good conversion rate of raising the Series A and helping them raise a Series A, has invested in businesses in my sector and has a very good relationship with some really dynamic angels. I would want to be meaningful to that fund and to those investors. I would want to represent at least 1 or maybe 2% of their fund as a primary investment out of the gate. And the reason I kind of say that to you folks is that yes, it's fantastic that there are crossover funds, massive funds, global funds who are moving into Europe because they're so excited by what you're all building and they should be. But you do not want to be a sub decimal point in that fund, I don't think at the outset. And that is because you are just an option. And when you become an option to a fund and times get shit, which they do and they can, you want them to want to roll up their sleeves for you. You don't want them to be like, where's this financial data which you're not used to preparing yet because it's not the right stage for you. And equally you want your next round to be be successful. And you don't want to have to think about the answer to the question why is X Fund not leading this round? And you don't want to then be not able to cause like a competitive tension in the round. So I would heed caution at bringing a non typical seed investor into your cap table at the beginning. That being said, I have absolutely co invested with kind of crossover funds, multi stage funds who have come in as a kind of supporting investor role and that has worked fine. I would just add a cautionary hint because I think that it's your business, you're building something that's very meaningful to you. It should mirror with the people who you surround yourselves with. And I think that when you matter so much to those people at the beginning, they will do a real solid by you.

And I suppose on to the next question. You know, how do you reference or how do you advise founders to reference their VCs? Carmen?

Yeah, I think that's a very important one because as we were saying earlier, it's not even like a marriage, you're having kids with these people because to get somebody out of your cap table is more difficult than to divorce somebody. And I'm saying I got married on Saturday, so I have thought a lot about it. But basically, but basically it is super, super important. And ultimately it all comes down to personal fit and wanting to work with these people, right? And mattering to these people and knowing that you can call Zoe or you can call me at like 1am for good or for bad news. Those are the ones that are, you want know they'll get like, their sleeves up when, like, things go wrong, because they will go on, that they'll jump with you and, like, there's something to celebrate. So how do you know if these are the right kind of. How do you reference them? I always share with founders some criteria or framework. So we mentioned, like, skin in the game. How do you measure skin in the game, though? I mean, look at. One good way to do it is look at your ticket size as a percentage of the font size. Right. And the font size is public information generally. So you can check whether you're at 0.01% of the fund or you're 10%. It's probably extremes, but that is one. Also look at relative ticket size. So ask them, because if they always invest like 100k and they're investing 100k in you, it's perfect. But if they generally invest 10 million and they're investing like 100k in you, that is tricky. Right? And it's tricky because when things go wrong or the incentives for me to spend time with a company where I have 10% versus where I have 1% are different. Right. And it's not that they're better or worse humans, it's just business and economics of the fund. Right. So I think that in, like, very kind of quantifiable ways of. How do you quantify skin in the game now? Personal fitness. That's why, as we were suggesting earlier, maybe go meet them, try to meet them, have beers, either over zoom, things like that. And last but not least, make sure that you reference them and that you reference them independently. And with companies where things went wrong, because where companies where things went right, it's always easier to, like, you know, have a rosy picture. So my advice is, if you know people who know founders of this fund, ask questions for references, and if you don't find them on LinkedIn and reach out, I think that's another way to do it. If you don't even know how to, like, you know, check what went right, what went wrong. There is a website called Crunchbase. You can download the companies that a fund has invested in up to a limit if you don't pay. But the freemium version works. And you can check and be like, okay, so they invested at sit here, and this didn't raise an A. This looks like it went wrong. Like, reach out on LinkedIn and try to find out how helpful that fund was or how helpful that person was.

Interesting. And if you're a seed fund now, I think it's important as well to look at does the fund have capital where it is? So maybe, Zoe, you can kind of talk about that a little bit because certain funds might be the end of their row, you know, have less capital available. And also I think maybe if you could talk about that'd be great.

Yeah. And again, this is us trying to I guess teach you to ask the right questions that will empower you to really understand how your investor is potentially looking at you. So funds that are typically closed funds might be around and deploying and investing capital for maybe like times have changed, but let's say three to four years. So they'll be making investments over that period. They will then spend the rest of the time perhaps deploying something called reserves. So money that they've held back, which they want to carry on investing in some of their companies, not all of them. And then they will have a period where their own investors will be expecting them to return that capital back to them. And that can often be, you know, from year kind of like 8 onwards, but it can be earlier. And so the reason it's really important for you to know whether you are kind of year one new company out of the gates for this fund or a year 8 company is so that you can understand what types of pressures your own investors may be under from their investors. Because this is all a lovely top down chain ultimately. And the point I'm making here is it's really good to ask the question, so what, how you know, what year, how big a fund have you raised? You can understand down the ticket size, relativity point, what year are you into deploying that fund? How much of that fund do you typically hold back for reserves? Just as well. So from the outset you know whether you can expect more capital from them or not. And then perhaps it's a good idea to ask a couple of other questions. One about competition or potentially adjacent companies that could be perceived as competitors. If you, you should be able to do this. But the reality is you'll be looking at a lot of fun to talk to and to do this amount of homework can get quite a lot for you guys. So it'd be good to understand their view on competition and investing in direct or indirect competitors so you know whether again you are an option or their choice. And I think the other point to ask is kind of how many exits or like winners that they've already had from the fund that they're in. And I say this because again, this goes back to the pressure point, if you know that your investor is in year seven, eight of their fund and they're talking to their own investors every six months. You can bet your bottom dollar that those investors are saying to them, where's the next return coming from? And you don't want to be that founder who is forced to find a buyer for their shares in the next few years, which distracts you, which takes your mind off building the business just because you didn't at the outset kind of come equipped with some of these questions. And, and I know that's probably a lot to take in, but I think it's just really important to try and understand as much as you can, all the different incentives at play with the people who are ultimately going to be taking a chunk of your business just so that you can start understanding how they could onward relay that pressure to you whilst you're building an absolute rocket ship.

Interesting. And Reuven, I just want to ask you a question about. We're all institutional investors, but there are angels that are slightly different. Why would you take institutional capital versus angels versus friends versus maybe talk about the advantages of what you're offering. I mean, if my company is going okay, I'm not going to raise an A, but I need more capital. Will you come and give me money?

Yeah, I think it's a very good question and you know, also alluding to comment to what you said, basically when things go sour, I mean, a VC could like squeeze you. I mean that's really like the extreme of the VC you don't want to have. Yeah. To like squeeze you for whatever funds she can get out of it. I mean it being your company and two is like, you know, just like get himself like a put option to like give back the shares for a euro so you can deal with your own liquidation of the company, which I deem as like the neutral option, neither supportive nor harming you. You can do whatever you want. Yeah. But then comes really like the supportive option. And that's something like we do at Cavalry, for example. We always try because we are entrepreneurs ourselves. So, you know, having built quite a number of companies over the last 10 years and to move things around. Because often you can move things around. I mean there are levers you can, you know, shrink until you grow again if you're in such a, you know, situation or we keep up the equity story so often you don't want to get a down round because it kind of like is a bad signaling in the market. So what we like to do is keep it, keep the momentum, basically. You know, keep your valuation, put in more money, make a plan, support Full time with like operations such as, you know, we have, we have HR we can support with hr, you know, finance, legals, also in house, cost you nothing, communications, pr, even crisis PR we can support if necessary to make something ugly look beautiful again. And yeah, why, why do we do it? You know, it's not, you know, it's also because of we believe in the company first and foremost, but it's actually, it's really more about supporting the founders and being thankful that they chose us as the partner. And the first step, you know, that we were allowed to invest. And then as you said that once we parted ways, maybe at one point, even if the company may fail, that they speak good about us, that they would recommend us. And we get actually tons of recommendations from founders where things didn't work out ultimately with their business and that's how we look at it. So it's a long term gain. So we don't want to earn on that single transaction. Then we would, you know. But I think that also funds are different. So if you do a reference checks, you understand who is really in for the long run and who is like opportunistic.

And one question we talked a little bit about it earlier, Zoe was competitive companies. I mean I have a great seed company, my seed investor invests in a competitor. How do you reference that? How do you look at that? What, what are good questions to ask VCs about how they might approach that.

Potentially if they say that they have.

Yeah.

Or how they are maybe asking them. We talked about asking them what they viewed as competitive companies and how, you know, how do you think about that?

Yeah, I mean again for me I hoping that either you've gone to a really specialized fund or you've gone to almost like a spray and pray, hundreds of people fund. Just so you understand, those are probably the two most common where I would find quite compelling competitive companies to be the most likely. So I would be asking them just straight up, do you have anyone who you think either now or in the next two or three years could start overlapping? And for me the overlapping point is kind of where it's probably going to be where you're competing for budget. So are we selling to like the same type of buyer, the same Persona? And are we essentially therefore whichever I go to market motion is but wanting the attention of the same person. So when I come to you to talk about customer bd, are you also going to be talking to this business about this? And then I would sort of be saying do you often merge companies? So there is a worry that if you are the more successful one and there is a less successful one in a sort of a very adjacent space, that one of your investors may put pressure on you to acquire the other one. So which you might not want to do, do. So I'd ask about their attitude to merging companies because it's a way of keeping them alive when some should perhaps die. And then finally I would, you know, I would just be as direct as you can be because you are building hopefully an open and transparent relationship with this investor. So I would just say to them, you know, if, if there is going to be a choice in your reserves, will it just be on performance? Like is there going to be one winner out of this? And then it's on you as to whether you are happy with kind of the answer to those, to those questions. But I think no investor gets worried about being asked those questions. They should be happy to give you their candid views on how they, on how they see that play out.

Awesome. So yeah, we'll keep moving. So the next topic I suppose is you know how to create momentum when you're fundraising. I suppose, you know, we hear a lot about that in the market. It's a bit of an art. But I was going to ask Carmen first of all because Carmen has an interesting approach to this. So Carmen, how do I hack the fundraising to create momentum?

Sure. I love this question. So I basically am brief intro so you get a bit of context. But I founded cocoa. We were VCs for many years then now invest like angels. So we try to exactly become the in house VC for founders and help them, amongst other things like hack their first round of funding. I think that when you, I was saying earlier, like whenever you decide to raise, but when you're raising, you're raising. Right. So like how do you think about it? Think about it as a B2B sales funnel. It is literally that you qualify leads, ie funds and you focus on getting them down the funnel or out of the funnel up until you get a, or many term sheets and then there's another phase in which you choose. But that's how you need to do it. Now there are many different ways to create that momentum and ideally and best case scenario, you have an ally, an insider, be the founder that has raised and knows has the network or an angel that supports you and has the network or a VC that is smaller and has the network so that they can help you create that momentum. And that word that we don't like but is always around, which is the fomo, Right. The fear of missing out. Now, there's so many other factors that come into that that I wouldn't stress too much about that fomo. I think that there is much more about the intrinsic value that you create about choosing the right market moment and then just running the process and being execution machines. It is very important to realize that when you're raising, that is what you're doing. And I understand that as a founder, it feels like the opportunity cost of the time away from your business is very high, and it should feel high so that you minimize it. But at the same time, you raise money to build a business. So what you're doing when you raise is also building the business. Right. And what cannot happen. I had this situation where I was helping a founder for many months as he was thinking whether to raise or not, and then he was like, I'm gonna raise now. Okay, great. I'm gonna make an intro. I made an intro to, like, a top vc, and the investor walks out of the meeting and goes like, oh, I love it. Love the guy, but he's not raising. And then I went to the founder. I was like, he thinks you're not raising. He's like, oh, yeah, I wasn't super clear. I was like, do you want to race? And he's like, yes. I was like, then you're racing. You cannot let anybody get out of a call without knowing what the next steps are so that you keep moving them down the funnel. Now, depending on how this works, you can do it more subtly, less subtle, like, there are many arts here. This is like dating, by the way. It's exactly like dating. If you're good at dating, you'll be good at fundraising. But. But the point is, however you communicate it, but you need to be ruthlessly focused in racing. That's like the best kind of way to. To create momentum and to run your round, I think.

And how much time should I. Like, how much time should I be thinking I want to raise my seed round? How much time do I need to give? And then initially, how do I. How do I figure out who's an insider? How do I get in touch with an insider?

Yeah, that's tricky. So on the timing, it's a very good question, and it's important for your own expectations management. So I think it can go anywhere from first meeting to term sheet and jump in with me for a seat round. But I would say it can go anywhere from less than. Even in the craziest times, like less than two to three. Three Weeks is very rare and to the point. Again, you need to get to know these people. So I advise you take the time to like, connect and reference them and benchmark them up to like two months, like, or so we've seen. Now, what is interesting about this question, though, is you need to realize, and this is very important for expectations management, that the round doesn't end when you sign a term sheet, that even except if you do a safe and even if you do a save or a shorter, like convertible, then they're the legal. So there is a second step that is from term sheet to money in the bank that will take less time of you, but that you should still be on like crazy execution mode because up until the money's in the bank, this thing is not closed. And that part tends to be if you do like long forms, which we call actual legal documents, like a pro price equity round that takes from four to six weeks. And it is important for you guys to know because generally founders struggle a lot with that because they think, term sheet done, I'm done. And then you have all these, like, long tail of, like, lots of things. So I think keep that in mind as well. And then how do you meet insiders?

Yeah, I think that's maybe Reuben or Zoe. I mean, how. I'm sitting in my home office, I'm in wherever, you know, in Waterford, where I'm from. How do I, you know, I'm not from. I'm, you know, I'm a great coder, I've got a great product, I've got some traction. How do I go about meeting insiders? Because it seems to me venture sometimes is a game of insiders versus a game of outsiders. And, you know, maybe the outsiders are the ones, you know, that should be getting more traction. Like, how do. I'm sitting in my room, how do I. How do I become an insider?

I guess many things to say about this. So you may have no insiders. And that is also fine. And I say it's fine. The truth is it could well be harder. But if you. It's sales, you are learning the art of a cold email. A LinkedIn approach, which is compelling and interesting and sure and to the point and shows you have research and have a reason to be communicating with this person. So there is, there is that approach. You can be your own best champion. But the other thing to remember is from ideation to. Before you are fully officially fundraising, you should be, whether it's in your home market or other markets, doing exactly what you're doing today. Networking, meeting people, whether that's other founders, whether that's early angel investors, accelerators. You should be testing your idea out on various groups of stakeholders as much as you can, because you'll be convincing various people, including your early employees, that this is a great idea. And there will be one person, there has to be for you to think that this is a great idea, who'll be like, this is a great idea and it's such a great idea that I'm either going to give you my time, which is super valuable, or my actual money, which is literally valuable, and one of those people will again, it's a kind of compounding effect, but they can be your biggest champion the whole way through. And it's why you must never kill your earliest investors and you must remember this later on, because they will have been the people who've taken the earliest leaps of faith. So I would say it's a great advantage to have. But don't think that you have nothing if you just have cold approaches and that you will inevitably be building a network the whole time from start.

Maybe, you know, in this context you can find on Crunchbase that Carmen mentioned, you can find what kind of angels have done which deals. So if you don't know them via your network, so find a way to get to those angels. Because when you have a great angel, a person who like funded or founded, ideally both before successful companies, ideally unicorns, but can also be sunicorns, try to get this person on board. And typically, you know, those sort of angels, they invest in teams. And oftentimes it's way better to do a concentrated approach to get 12 of those superstars on board as opposed to doing spray and pray, don't invest enough time, you know, never even send out just like generic, you know, messages on any, any medium to like any investor you want to work with. Because ultimately, you know, as a role of an angel and also as an early stage investor, your incentives are aligned between, you know, you as a founder and them. So once they are on board, they support you if they're good investors with what you need.

And real, if I may add something very quickly. So the reality is like when we talk, Zoe was saying, you don't need an insider. You don't, it will be harder. But the reality, and this is not because we're all like snobs that only like to hang out with each other, it's because we get hundreds of companies as inbound and we read through all of them because we have full respect for the time and the energy that everybody's putting behind that. But the reality is that when you look for signals, if somebody you really trust, if somebody Zoe, sends me a company, I'm for sure gonna meet that company because to me, it's already a great sign that she wants to send that to me right now. If I read a cold email, I'm gonna read the deck, but I don't have that extra signal. So I might still fall in love with the company and ping you back and have a call, but it is one signal less. Now, having said that, also, nobody is born an insider. You become an insider. Like, we've all backed companies. There is a company, I actually angel invested with one of Soy's partner that got through me because Zoe's partner knew a guy from Burning man who knew the company. And so this company, these founders who were 22 by the way, spoke to everybody on earth. And this guy who went to Burning man with Ben told them, oh, I know one deal from B.C. and so they introduced him to Finn and then Finn introduced them to me. And then that's it. You know what I mean? Like, it's meet everybody, talk to everybody, hustle your way through, and there will be one person that will see the value that you're creating and will champion you. So it's not. Nobody's born an insider. So if you're in your office in Dublin by yourself, don't think that you don't stand a chance. Because, I mean, even Johnny from hopping, by the way, like, he had, like, had been rejected by everybody, got through me via an angel that he harassed for like months. So, like, that's the point, right? Like, we can all become insiders if you hustle your way through it.

Agreed. So we're going to keep moving. So onto the kind of last topic, I suppose it's what's the seed market like now in Europe? Is it a good time to raise? Which we kind of covered earlier. But, you know, are you guys investing? Are you, are you in the market? What, what, you know, what's changed has, you know, maybe talk me through Zoe, what's happening?

We're absolutely investing. We aren't the only ones. It's a great time, as everyone will tell you. And I could recount all of the things about every downturn in the market. It is a great time to build. However, warnings are talent is still expensive and some founders mentality and psychology hasn't been yet shifted into the fact that we are slightly entering a new price. Disciplined. Have you got 24 months? Runway will a growth investor love what you're building? World? Which just means actually that for you to be successful now, you have to be amazing. But isn't that great? Like, and Europe is a wonderful place to be. There's a lot of capital and there's a lot of conviction. So for me, positive. But with the couple of warnings, signs.

Yeah. And Carmen, maybe you can kind of talk us through. You had some views around, you know, valuations have changed and expectations around valuations might have changed.

Look, I think the best companies are actually created in like situations like this because it cleans everything else that like should not have got funded, that like, should have that it just gets clean and that makes more talent available and also it sort of spikes creativity. So we're incredibly excited about the companies that we will see being built in the next two years. Right. @ the end of the day, you need to think about like the intrinsic value of what you're creating, of the technology that you're creating is moving upwards. What you need to make sure is that from now till the market sort of recovers again at later stages, you do not need money so that you're not caught in the middle of the dam. That's a little bit how we think it. Now that has also to do with evaluations at which you reach seed, because what was happening a year ago was that we were seeing like seed rounds of five at 30, which by the way are. They were series A's. When I joined vc, like when I joined VC seven years ago, that was a. But that became a pre seed a year ago. Like five at 30. Great. That means your A is gonna needs to be at like 150, 120, 150 million. Now they were, they were happening now today to raise around a series A at 125. People are gonna ask you for a lot of data, for a lot of traction, for a lot. Like the bar is very high. So it probably you're not serving yourself well in raising a seat at 30 because you're putting a lot, a lot of pressure on yourself and the performance that you need in order to raise the next round. So how I would think about it now, I don't think rounds are going to get much, much, much smaller because investors still want companies to have enough funding to go from one side of the market to the other. But think about how much money does my business need for the next 24 months plus a buffer, as we were saying, and then think about dilutions of percentages or the price that you pay that make more or less sense so that if you then take the valuation that you end up, you multiply it by three or which is your next round and you feel like, I can build a business that can be valued at this in 24 months, right. And never actually do not think, when you look at the terms, do not think about the valuation top line, is it like 20, is it 30, is it 10? What matters is the price you're paying and that is the dilution. So actually think about the size of the round, which is what should be the driver because it's the money the business needs and how much you're paying for that. The dilution, the valuation itself is just a product of those two. But it's highly confusing because you can be raising at 50, by the way, 50 million and it can sound very high, but you might get being diluted 50%, right? And that is like, makes no sense. You might raise a 10 million and being diluted 10%. So like, think about like the actual size of the round and dilution or price that you're paying rather than a top line valuation, because it's very confusing.

I may have two, two, two final things. Yeah, we're wrapping up, we are running, running out of time and I think you have, you have the final words, David. So, you know, one is like, I mean, we are, we are, we had a SAS conference and you know the underlying trend of continued digitization of the established companies, it won't go away. I mean, we are in full force and there is amazing companies, most of them actually, they have 60, 70, 80% equity quota. They can endure a crisis, they have the right management teams, CDOs, etc. They know how to purchase SaaS products. So they will continue. So just follow the trend maybe. Look, who are the good clients of yours? There are some who may go out of business who don't have that much of a good equity quota, who don't have a good management team, who don't know. So really be careful whom you actually yourself spend your valuable time on onboarding as a client.

Sa.