Trace is a serial entrepreneur in NYC and now the Managing Director of NYVP making angel investments
There are countless sayings and phrases that you’ll hear during the fund raising process (on both sides) but I can guarantee you that one stands out among the rest…
Once you raise, you’re always raising
We have one company that raised a seed round and doesn’t have to raise again, while another has raised $1B+ but for 99.99999% of you, you will be somewhere in between those.
As early investors at pre-seed/seed levels we take HUGE risk when you have very little generally to show in terms of a business, traction or even sometimes a product. Why? Because we’re crazy and love it but most of all for the potential HUGE return multiples that will hopefully someday justify what we do. This is why your valuation is very important to us — if we invest at a $5M or $10M valuation and then you sell for $100M, that’s the difference between a 10x and 20x. This is a game of multiples.
Lately I’ve noticed that many first time founders and/or first time fund raisers set milestones, metrics and speculative traction based on what they want but not what the next round of investors might want. For example, I just met with a startup building an app that projects with their seed round they will achieve 250,000 downloads. Sounds like a lot but my first question was “Is that good and why that many?” They didn’t really have an answer to that because they thought that vanity number alone just sounded good enough.
It’s a safe assumption that with your pre-seed/seed round of ~$500k-$2M you won’t be a profitable, self-sustaining business and that’s OK. So in order to keep the company going, you will need to raise more money, so this round will give you the proverbial 12–18 months of runway. That means you have about 12 months to hit your key metrics because it will take 3–6 months generally to raise your next round, so you will have to time it properly to make sure you’re still in business AND not about to go out of business when talking with prospective investors. Always try to raise from a position of strength!
Fundraising is rarely a clean and straight forward process:
We always say at the early stage that we bet on founders and their unfair advantages. One of the many skills and traits that I generally don’t hear often but we like to see if also your ability to raise capital — it’s a necessary quality as you have to do it. Your ability to multi-task, taking the lead to keep everyone updated, working with lawyers, your investors and your team is an invaluable startup skill.