How to absolutely, positively get seed funding every single time

TL;DR Only serial founders with strong domain knowledge and track record and traction get funded quickly. For most founders raising a seed round is a lot more work, but there is a method to the madness.

We often write here about raising capital.  Capital allows startups to go faster and generate growth. However, raising capital is not simple, at least for most founders.

Let’s start with what is probably the worst case scenario – you are a single founder, right out of college, with an idea in a space where you have no domain expertise. That is, you have no team, no product, no traction, no experience in general, and no experience in the space specifically.

This extreme case illustrates the reasons why investors are skeptical – this is a very risky investment situation. That is, you may be brilliant, and you may pull it off and build a massively awesome business, BUT this is clearly a very risky bet.

Investors, particularly angel investors, look for ways to reduce the risk when they are funding a company. That’s why the founders who get funded the fastest are the ones that REDUCE INVESTMENT RISK.

Below we discuss the profiles of founders that investors gravitate to, and tend to invest in.

1. Serial founders

You already know this, but I will say it anyway. The world is not fair.

Serial founders who’ve been successful are MUCH MORE LIKELY to get funding.

I’ve met many investors who simply would not fund first-time founders. They are not bad people. It is just not part of their fund strategy.

When these investors raise money from their LPs (limited partners, i.e. investors who give money to investors), they promise them in their decks to only focus on serial entrepreneurs.  This is no different from an investor saying they will only focus on healthcare or they will only invest in NYC companies. It is fund strategy, and while I personally do not believe in investing that way, I recognize that it is a perfectly legitimate strategy.

Investing in serial founders with domain expertise makes sense.

First, serial founders avoid making silly mistakes in just about every single aspect of the business that first-time founders make.  Serial founders intuitively know what NOT to do.

They know what WON’T work. Because of that they tend to execute better, grow companies smarter, and get to revenue faster. Not always, but that’s the perception of the investors.

2. Founders with domain knowledge

When you are starting a business in a space you don’t know much about, you are at a MASSIVE disadvantage.

Think about it, when you don’t know something, you have to study it. For things like physics or international affairs you go to college. You spend years learning, and you have to pay for your learning.

When you start a business in a space you aren’t familiar with, investors feel that they are paying for you to learn the business. That is, you aren’t executing right away—first you are learning.

Investors aren’t your mom and dad; they don’t want to pay for your education.

Investors are attracted to founders with domain knowledge. Investors talk about so-called founder-market fit.

Why are these founders doing this business? The answer investors are looking for is—the founders know a ton about the space, and have identified an opportunity. The founders know that there is an opportunity based on their strong domain knowledge, and years of experience in the space.

3. Founders with Traction

While your business is just an idea, investors will come up with 1 million reasons why it won’t work. But if you keep growing week-over-week, month-over-month, and grow your revenues and customers, eventually all objections go away.

Investors can’t resist funding growth. Investors can’t resist funding traction.

Growth and traction are indicators of a product market fit.

They are indicators that the business is really working. Whether you’ve done a startup before, whether you know the space or not no longer matters. Growth and traction mean that you have figured it out, and it is working, so the investors want to jump on board.

4. Founders with Experience and Network

If you aren’t a serial founder, and don’t have a ton of domain expertise or traction, you can still get funding, but it is A LOT HARDER.

There is a pattern in the industry where founders coming out of top tech companies like Google,  and Facebook  get funded. If you spent years and proved yourself in a product or engineering role at one of those top tech companies, potential investors tend to take you more seriously.

This is because you are likely to come recommended from a strong network of alumni from those places who can vouch for you and introduce you to the investors. For example, you worked with a founder whose company got acquired. When this person is introducing you to their investors, the investors will be paying attention.

In a way, this dynamic is not very different from graduating from a top-tier school. You lean on a strong network and leverage your connections to get an introduction to investors.

5. Mission Driven, Intellectually Honest Founders

Some founders clearly stand out from the rest. You can tell how obsessed they are. These founders won’t go away, and won’t give up no matter what. Investors often refer to these founders as mission-driven.

In addition to being mission driven, these founders are deeply self-aware and intellectually honest. They are socratic and introspective.

Mission-driven founders are on a journey of discovery. They have a true north, but are flexible about the specific path that gets them there.

They radiate power and awesomeness, and although they may be young and inexperienced and early, they manage to convince investors with the mix of enthusiasm and knowledge. Mission-driven founders have infectious energy that attracts investors, and investors decide to roll the dice alongside these founders.

When raising capital, think about the types of founders that tend to get funding. Which one of these founders are you?

10 comments

  1. The problem with all these investors who don’t want to fund first time founders is that Jack Dorsey, Elon Musk at one point were all first time founders and if the smart investors did not give them the capital to scale their first businesses, there is a question if they would have gotten to create all these amazing companies as serial entrepreneurs. Also I disagree on the education point, investors should invest not only in execution but in education as well, nobody knows everything and the founders who do not learn all the time/constantly should not be funded, so actually I would argue the opposite is true: smart investors invest not only in execution but in education as well and that has nothing to do with being the entrepreneurs’ parents it is a whole different dynamic. Generally there is a massive misalignment of interests between investors and entrepreneurs, in most cases when investors want to invest entrepreneurs don’t need their capital since they have found product/market fit and when entrepreneurs actually need the capital investors usually are not interested investing since there is still inherent risk in the deal. Simply put everyone wants to have the cake and eat it too!

    Liked by 1 person

    1. Thank you for the feedback Val. I think a lot of the dynamic comes from how different investors make money. Understanding this is critical for the founders. Making money in early stage is just difficult which is why investors appear to be conservative. It is easy to lose money, but hard to make money.

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  2. Alex, great article. The content is indicative of the current funding environment – when the funding environment is tighter #RIPgoodtimes, investors are much more selective.

    We experienced the pitfalls of not having everyone of your points neatly checked and presentable. So we ended up wasting a bunch of time when we should have been addressing each one methodically which we are doing now and meetings are much more effective now.

    Funding is ultimately a game to be played, so learn the rules, gather the tools, and practice being cool.

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    1. David, thank you for the comment, and I am sorry to hear you wasted time. The good news is now you learned and hopefully it will be a better route for you going forward.

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  3. serial entrepreneurs like sean parker ? remember he created airtime.com and its dog shit now.. I think the serial entrepreneur hype is just nonsense. Am not saying it doesn’t help but people shouldn’t capitalize on that

    Look at google founders or zuckerberg.

    Liked by 1 person

    1. I get it and I am not saying it makes sense. Just saying that this is how some people approach it.

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  4. As a serial entrepreneur that has raised 4 times (including post dotcom crash and post Lehman crash), have had 2 exits, went throughTechStars with my latest, have deep domain expertise, I think that everything you list is additive and the only force multiplier is traction.

    Liked by 1 person

    1. Yep, traction beats everything else.

      Liked by 1 person

  5. What a great timely post, thank you

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  6. […] of your parents it is your investors who are paying for your education. And the investors typically don’t like that. Experience is particularly important in b2b space, where domain knowledge is critical. Without […]

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