Masset recently closed a round of Pre-Seed funding for 700k! You can read all about it on techbuzz.news who graciously picked up the story.
I won’t lie, given the current economic situation, raising anything feels like a great success. I’m extremely grateful to our investors have taken a chance on us. And believed in us enough to give us runway enough to work through the hard problems. I’m sure I’ll write a lot about Startup Ignition Ventures over the next few years, but I’ll just state upfront that being so aligned with your investors is awesome.
Having just wrapped this whole process, I took a few moments this week to look back and summarize a few lessons I feel I learned. I’m no stranger to the world of VC and startups. I’ve got through this process a couple times in different capacities. But I still feel I learned a few new things.
If you’re looking for a list of guaranteed ways for your business to get funding, probably look elsewhere. This is a list of things I personally learned, and are more than likely not universally applicable.
It really is just a step
Having worked at other startups that raised funds, it always felt like a big deal. Sure the E-Staff team (or myself) would always get up and tell everyone to not make a big deal of it, and to stay focused. But that never really felt accurate. Closing a Series A, B, or even C was a chance to celebrate with your coworkers and get excited about the future millions your options would be worth. (Spoiler alert: They probably won’t be. But that’s for a different article).
Closing a Pre-Seed round at a founder-employee company really does feel like a non-event. The next day, Ben and I sat down and planned out of our next quarter. We talked about what pipeline to go after, how we were going to nail Product Market Fit and product roadmap. At the end of the day, nothing had changed. Plans stayed the same. A lot of that is probably due to the type business we are building… but it really felt like nothing changed.
Don’t get me wrong, I’m very happy we have numbers in our bank account now. But in a well-planned business, leaders should already know what’s going to happen. Funds may enable that, but it shouldn’t necessarily change it.
Raise on an idea or raise on a growing Business; not both
Masset was in an interesting spot when raising. I might share our exact numbers at some point in the future, but for now, its enough know that we had great customers, growing revenue, and a great product, already in production. But we were still early.
When we first started discussions with VCs, we got a lot of answers of both “you’re too early for us”, and ironically “you’re too late for us”. We were kind of in this no man’s land between early Pre-Seed and full on Seed.
If you’re looking to raise a full Seed round, expect a lot of VCs to want to see 1m+ in revenues. If you aren’t there and want to be, you’ll probably need to grow.
If you’re looking to raise a Pre-Seed/Angel round, you might as well just do it before you start building anything. Pitch and sell your idea. From my experience, early stage VCs seem to write off early customers anyways.
Eventually we found some excellent funds that spanned both Pre-Seed and Seed. They fit more closely with our thesis and the current state of our business. They valued our existing customers and revenue and believed that we could turn those customers into ideas that would push us to
You’re looking for fit, not money
When we first started raising, I distinctly remember telling Ben, “I don’t care who we take our round from. Money is money. It’ll all help us scale this business.”
Maybe I shouldn’t admit that. But I will admit I was wrong. Woo boy was I wrong. Thankfully I learned my lesson very quickly.
It was really fun to talk to lots of VC groups and discuss how they viewed each company in their portfolio and the goals they had with each. Each group had a unique thesis that they invested against.
At first, I tried really hard to get a grasp on each thesis and to convince groups why our company fit well. Ironically, it felt a lot like dating in my 20’s. (Editor’s note: we won’t expound on that too far). It’s pretty easy to see on a first date if someone is incompatible. Often it’s best just to admit that and move on. No need to try and force something that just won’t click.
What did end up working when meeting VC groups was taking the time to understand the investment thesis of each group and have an honest discussion about whether we felt that aligned with it. That led to a lot of first meetings with no followup. But that was fine.
Eventually we found 4-5 groups that approached business the same way we did. And with those groups, we were interested in building a business with them, not just taking their money. With our eventual lead investor (SIV) we knew we were aligned after the first meeting. That led to much more open discussions as the process went on.
There are no right answers, but there are a lot of wrong ones
Expanding on the previous point, VCs will ask you a lot of questions about your business, your goals, and your approach to things in general. While many of these may seem innocuous, they actually can point out misalignment early, which is actually good not bad.
When we first started, I would sometime dance around the questions trying to get an idea of what they wanted me to say. Looking back, that probably came off as a little bit wishy washy and not as strong as it should have.
One great example of this that happened over and over was the question “What are you going to do with this money?” and similar derivatives. If you answer this question wrong, you’ll lose VCs. Hands down. The problem is that the right answer for one group is the wrong answer for another.
One VC might want to hear a variation of “We’re going to spend it to scale customer growth at all cost. We are not concerned with profitability as much as we are about revenue and user growth. We believe that we can spend this money over 24 months and get enough users to be in a position to raise again at 12x our current valuation.”
A different VC might want to hear about massive investment (ie hiring) in Product development to get ahead of the market. Another might say that they want to see you minimize burn until you have an extremely strong PMF signal. All approaches are valid methods to attack a problem. But they are not all valid for you and your investors.
So my advice is to actually have an opinion and to stick with it. If it doesn’t align with the VC group you are speaking with, that’s fine. They can think differently than you and you can both be wildly successful. Stick with how you want to run your business and find someone that aligns with it.
No one cares about Your product… really, they don’t
Not much to say about this other than that our pitch deck had a single slide about our Product. In many cases, I felt like even having the one slide was too much. And we had a production-level product already live with paying customers using it on a day-to-day basis.
Unless you have a truly revolutionary product, VCs will likely care more about your GTM strategies, market sizes, and customer feedback than what you built. I’d say it’s probably wiser to focus your time and effort there.
You can do it all wrong and still succeed… and vice versa
Before we closed our funding with SIV, we attended a two-day bootcamp on Lean Startup principles with the managing partners, Tyler and John Richards. It was a firehouse of information and knowledge that reconfirmed to Ben and I that we were well aligned. A wise investment for certain.
A few days after we closed the Pre-Seed round, there was a follow up meeting for bootcamp attendees that taught how to approach funding. I was amazed to see that we had broken or not followed >50% of their recommendations. The fact they invested in us despite that tells you that there is no perfect book on approach.
Definitely make yourself knowledgeable, but don’t make the mistake of believing there is a single way to approach fundraising. It often feels more like an art than a science.
Building is more important than raising
As a parting thought, just remember that building a business is far more important to raising than talking to VCs. If you have an amazing business, closing funding will be easy, independent of the market conditions. Your time is probably better spent invested in building (and selling) your business than always worrying about trying to get money.
So get out there and BUILD!