Seed Investments: How to be Attractive to Early Stage Investors

Here are the top 10 takeaways on how to make your company attractive to early-stage investors.  

  1. Build a great product. It all starts here. Your product must clearly solve an identifiable market need.

  2. Demos are overrated. Ideas are a dime a dozen. Demos can be helpful, but investors assume that you can solve the technical problems. Investors start paying attention when you can execute and demonstrate market adoption.

  3. Trust your source. Investors get deal flow in various ways, but investors pay closer attention to referrals from trusted sources.

  4. Syndicates are good. Different angel investors have different skill sets. If you can, round out your angel investor team.

  5. Incubators can be good too. Incubators can add value by sharpening your business plan. If you can, select one that is well connected to investors.

  6. No cash for you. Seed investors expect investment funds to be used for building the product and the business, not for founders’ salaries.

  7. Valuation is not in the eye of the beholder. Lengthy valuation discussions are a red flag for investors. Let the market sort out the price.

  8. Understand your investors. VCs and angel funds have to act in the best interests of their investors. Sometimes that means taking action that you don’t agree with, including demoting or even terminating nonperforming founders.

  9. Keep your perspective. While a company starts out as your baby, over time it becomes a lot of people’s (including your investors’) baby. Things change.

  10. Create trust. Do your research on your potential investors, build great rapport with them, and work hard on setting and meeting expectations. 

How to Prepare for an Equity Financing

We have covered in past FTTWs how to value your startup and how much capital to raise. Once your startup decides to pursue equity financing, you should start to prepare for the investor due diligence process. On the business side, you will need to prepare a business plan and should take steps such as obtaining management references, interviews and background reviews, customer/user references, technical/product reviews, financial statements and business model reviews.

What Every Startup Needs to Know

On Wednesday, June 26th, Perkins Coie’s Palo Alto office hosted the startupPerColator event, “What Every Startup Needs to Know.” Lowell Ness, a Perkins Coie partner in the Emerging Companies & Venture Capital (ECVC) practice, moderated a panel which included Herb Stephens of NueHealth, Thomas Huot of VantagePoint Capital, Jennifer Jones of Jennifer Jones and Partners, Yuri Rabinovich of Start-up Monthly, and Olga Rodstein of Shutterfly.