4 ms·

Anatomy of a Seed Round During Covid-19

36 points by luu 6y ago

dustingetz 6y ago
Thanks for writing this. Is this tree of 38 small checks what most seed round looks like? Needing to manage the chemistry of that many people gives huge meaning to when funded founders say, if they could do it again they would bootstrap.
- malisper 6y ago
  I think some seed rounds work this way. Some seed rounds have a small number of large checks that fill up the entire round. For managing chemistry, the extent of our interaction with most of the investors is they are on our investor mailing list. Besides that, we ask them when we need help with something.
- ttul 6y ago
  A large number of small checks is common in seed rounds. A piece of unsolicited advice: put the checks into escrow with your lawyer and set a minimum raise threshold. It will make it easier to attract capital if investors know you’re only committing them to a successful raise.
cityzen 6y ago
It's always interesting to me to see a platform like this that puts so much focus on raising money while their first tier product is free. In fact it says FREE FOREVER! Their other pricing is custom in which I'd have to contact them. I always have a hard time understanding what the appeal is to a seed investor in a product that is going to be free for the vast majority of users. Anyone smarter than I am have any insights into this? Does a company like this miss out on product development because they are spending so much time raising money?
- nkristoffersen 6y ago
  As a paying customer of Freshpaint, my perspective is they are building a great product with a clear value proposition. The steady stream of product improvements tells me they are still very focused on product development.
ForHackernews 6y ago
> Freshpaint collects behavioral customer data from your website and app, and sends that data to hundreds of analytics and marketing tools in one click. Oof. I'm sure there are many people who want this thing, but I really of wish our economy weren't structured so that pouring over a million bucks into the N+1th surveillance ad-tech thing seemed like a good investment.
rememberlenny 6y ago
The visual map of where the money came from is incredibly helpful. Thank you! Direct link for the lazy: https://uploads-ssl.webflow.com/5dad2b1e508f04886d0245c3/5f3b0a0cc95ca033b5715bb2_image.png https://uploads-ssl.webflow.com/5dad2b1e508f04886d0245c3/5f3...
twayback 6y ago
What did you guys get diluted to? :( I hope this was a good stable valuation across all investors. What's the value in raising really low amounts like 5k? would it not have made sense to keep a minimum amount e.g. > 50k/100k?
- enra 6y ago
  You want to get friends, family or certain operators to spend time and help the company. Lot of individuals don't have $50k-100k to invest, but they could invest $5k-20k and that way have skin in the game. As a founder/company, doesn't really matter to me if a person invests $5k vs $50k if they are just engaged and helpful. For example someone who really understand sales and can teach you, can be more valuable than a random angel investor who don't have any particular skills other making intros to their network. However, you don't usually want to raise the whole round from $5k investors since it can be a lot of work, no-one has a bigger stake, you add a lot of names on the cap table and its going to be hassle each time you do additional financing.
- Rotten194 6y ago
  from the end of the article: Take small checks. People writing small checks is something that's very common in Silicon Valley. I love having a bunch of founder/operator investors to tap in to when we need help. You can see from the image above, we raised over $700k from intros that originated with a small $5k check. If we hadn't taken that small check, we likely would not have connected with many of those other investors.
- fitzrocks 6y ago
  Hey! I wrote the post. SAFEs make it easy these days to add someone to the round (for any amount). The issue becomes time management (is it really worth hours of calls, responding to questions over email, etc) trying to close such a small check. There's a secondary issue of wrangling each investor in subsequent rounds or an acquisition (which that can just gets kicked down the road). Some investors provide value beyond their money, mostly with their connections to other investors, connections to potential customers, and skills in certain areas, or just generally someone you can call for advice. One thing I've learned having gone thru this process: it's common for angel investors to write small checks, though not common knowledge. I always thought you needed to write a $25-50k check to be able to invest in a startup. It's common for people in the industry to invest smaller amounts like $5k-$10k, sometimes even less than $5k. I've even now started doing it myself.
pseudolus 6y ago
>>Record your calls and self-assess<< I'm assuming that the other party was informed the call was being recorded. I'm not sure I'd be too comfortable dealing with an entity which recorded my calls without my consent, an act which in certain jurisdictions may not even be legal.
- fitzrocks 6y ago
  I'm the author of the post - yes, of course. best i can remember, a handful of people asked to not record. almost all were fine with it.

36 points by luu 6y ago

Thanks for writing this. Is this tree of 38 small checks what most seed round looks like? Needing to manage the chemistry of that many people gives huge meaning to when funded founders say, if they could do it again they would bootstrap.

malisper 6y ago
I think some seed rounds work this way. Some seed rounds have a small number of large checks that fill up the entire round. For managing chemistry, the extent of our interaction with most of the investors is they are on our investor mailing list. Besides that, we ask them when we need help with something.
ttul 6y ago
A large number of small checks is common in seed rounds. A piece of unsolicited advice: put the checks into escrow with your lawyer and set a minimum raise threshold. It will make it easier to attract capital if investors know you’re only committing them to a successful raise.

cityzen 6y ago

It's always interesting to me to see a platform like this that puts so much focus on raising money while their first tier product is free. In fact it says FREE FOREVER! Their other pricing is custom in which I'd have to contact them. I always have a hard time understanding what the appeal is to a seed investor in a product that is going to be free for the vast majority of users. Anyone smarter than I am have any insights into this? Does a company like this miss out on product development because they are spending so much time raising money?

nkristoffersen 6y ago
As a paying customer of Freshpaint, my perspective is they are building a great product with a clear value proposition. The steady stream of product improvements tells me they are still very focused on product development.

ForHackernews 6y ago

> Freshpaint collects behavioral customer data from your website and app, and sends that data to hundreds of analytics and marketing tools in one click. Oof. I'm sure there are many people who want this thing, but I really of wish our economy weren't structured so that pouring over a million bucks into the N+1th surveillance ad-tech thing seemed like a good investment.

rememberlenny 6y ago

The visual map of where the money came from is incredibly helpful. Thank you! Direct link for the lazy: https://uploads-ssl.webflow.com/5dad2b1e508f04886d0245c3/5f3b0a0cc95ca033b5715bb2_image.png https://uploads-ssl.webflow.com/5dad2b1e508f04886d0245c3/5f3...

twayback 6y ago

What did you guys get diluted to? :( I hope this was a good stable valuation across all investors. What's the value in raising really low amounts like 5k? would it not have made sense to keep a minimum amount e.g. > 50k/100k?

enra 6y ago
You want to get friends, family or certain operators to spend time and help the company. Lot of individuals don't have $50k-100k to invest, but they could invest $5k-20k and that way have skin in the game. As a founder/company, doesn't really matter to me if a person invests $5k vs $50k if they are just engaged and helpful. For example someone who really understand sales and can teach you, can be more valuable than a random angel investor who don't have any particular skills other making intros to their network. However, you don't usually want to raise the whole round from $5k investors since it can be a lot of work, no-one has a bigger stake, you add a lot of names on the cap table and its going to be hassle each time you do additional financing.
Rotten194 6y ago
from the end of the article: Take small checks. People writing small checks is something that's very common in Silicon Valley. I love having a bunch of founder/operator investors to tap in to when we need help. You can see from the image above, we raised over $700k from intros that originated with a small $5k check. If we hadn't taken that small check, we likely would not have connected with many of those other investors.
fitzrocks 6y ago
Hey! I wrote the post. SAFEs make it easy these days to add someone to the round (for any amount). The issue becomes time management (is it really worth hours of calls, responding to questions over email, etc) trying to close such a small check. There's a secondary issue of wrangling each investor in subsequent rounds or an acquisition (which that can just gets kicked down the road). Some investors provide value beyond their money, mostly with their connections to other investors, connections to potential customers, and skills in certain areas, or just generally someone you can call for advice. One thing I've learned having gone thru this process: it's common for angel investors to write small checks, though not common knowledge. I always thought you needed to write a $25-50k check to be able to invest in a startup. It's common for people in the industry to invest smaller amounts like $5k-$10k, sometimes even less than $5k. I've even now started doing it myself.

pseudolus 6y ago

>>Record your calls and self-assess<< I'm assuming that the other party was informed the call was being recorded. I'm not sure I'd be too comfortable dealing with an entity which recorded my calls without my consent, an act which in certain jurisdictions may not even be legal.

fitzrocks 6y ago
I'm the author of the post - yes, of course. best i can remember, a handful of people asked to not record. almost all were fine with it.