Feb 11, 2020

Our step-by-step strategy for raising a $4.3M seed round

Chris Hicken By Chris Hicken
CEO at Nuffsaid
seed-round

I'm excited to announce today that 'nuffsaid secured a $4.3M seed round.

It was led by General Catalyst and Gradient Ventures (Google’s AI fund), with participation by Global Founders Capital, SV Angel, Work Life Ventures, and Wasabi Ventures, among others. We’re proud to be partnering with these teams and to be part of their portfolios, sitting alongside iconic tech companies like Stripe, Slack, Airbnb, Gusto, and LinkedIn.


We founded ‘nuffsaid 10 months ago. Before then, I played various roles in B2B software as a leader, investor, advisor, and board member for over 15 years, where I most recently was the President and COO at UserTesting.

 

I also recently spent a year at Inspiration Ventures, an early stage venture capital firm which makes sector-agnostic investments.

 

Armed with experience on both sides of the table, I can share a unique perspective on how to raise money effectively.

Know what VCs are betting on

Pitching your company to VCs is similar to selling any product—always start by understanding your customer’s motivations and pain, then tailor your messaging and pitch accordingly. 

When betting on early-stage companies, VCs are looking to place bets on startups with large market sizes. They’re also generally not familiar with your category and have little evidence that your idea will work. That means they need founders who can articulate a vision of how their idea is going to solve a critical problem in a niche market, a less intense but still notable problem in a massive market, or if you’re lucky, a critical problem in a massive market. 

Most founders know this, but 95% of company pitches I see have underdeveloped market size stories. Most founders say something like this: there are (X) people in my target market, and assuming (Z) average deal size, we have a billion dollar market! Lame.

An effective market size story needs to:

 

      1. Clearly define what problem you’re solving and for which target customer profile
        1. Rule of thumb: If you have more than 100,000 people in your initial target profile, it’s far too large. In a B2B market for example, narrow your customer by department, seniority, company size, and industry (among other factors).
      2. Define how intensely each target customer feels pain from the problem

      3. Justify the value you can extract from each with ROI cases

      4. Demonstrate how your first target customer allows you to unlock future target customers


 

If you do this well, you check one of two mandatory checkboxes for VCs.

The other checkbox is the quality of the entrepreneur. You’ve probably heard the saying “angel investors are betting on people,” and that’s generally true—it helps to have previous founding or early startup experience. Most VCs also look for “trust symbols” like Ivy League education, flashy company logos on your LinkedIn, etc. That being said, entrepreneurs with less experience can build their credibility by:

      1. Bringing on co-founders that complement their experience
      2. Enlisting advisors that have built successful companies in the same space
      3. Demonstrating functional mastery in engineering, product or sales   


Start pitching VCs early, even before you’ve started building something

The best advice I can give is to start meeting with VCs eight to ten months before you need to raise money. The worst thing you can do is start pitching three months before you need the money.

If you’re raising money for the first time, you likely don’t have any market traction or evidence that the product is going to be adopted. The team is tiny; maybe it’s just you, the sole founder. That’s normal. You can build confidence with VCs by bringing them along in your journey. In the first six months, you won’t do any pitching or fundraising. The investor will slowly build trust and confidence that you can communicate your plan and then execute on that plan. And at that point, an investor will be significantly more likely to invest in you as an entrepreneur. 

I first started pitching VCs about a month after I came up with the idea for ‘nuffsaid—long before the company was founded. I met with 14 VCs and came to them with three business ideas I wanted to pursue, and I got their feedback about which one they would be most excited about. 

A month later, I told them which idea I had picked and why I picked it. I gave them an early look into what I was thinking about how the product might look. Then a few months later, after officially founding the company, I reached out to this group to let them know I had brought on two co-founders. Then we had a well-designed product to show off in our next meeting.

If you imagine yourself as an investor in a very early stage company, wouldn’t you value seeing the company evolve over time before making an investment commitment?

Start talking to investors about your company long before you actually need cash. If you’re pitching when you need cash, it’s too late. 

Pick the right partners and let them know you’re prioritizing them

At ‘nuffsaid, we’ve been able to lean on our investors for referrals when recruiting and hiring, for making key strategic decisions, for access to a community of top entrepreneurs, for brand recognition when attracting talent, and even for office space. Picking the right partners gave us access to a wide array of resources because we picked great investors and asked for help. 

When you’re picking the right long-term partners, you should consider their interest and familiarity with the space and their personality. 

Here’s some advice on how to do that:

Typically you’ll enter into a conversation with a VC through a junior associate. The junior associate is the person that decides which partner to connect you with. It’s a very efficient screening process for venture firms, but there’s a catch: after a 30 min call, the associate probably doesn’t know enough about you to match you to the best partner at the firm. They might not know what the partners’ interests are outside the companies that they’ve already invested in. They probably (definitely) don’t know what types of personalities your company needs in an early-stage investor unless you tell them. 


So a good approach here is to map out the partners within a firm and externally, and see which people are showing interest in the space. That might mean they’ve invested in companies in your space, but that could also mean that they haven’t yet but are showing an interest in doing so. Start by asking around—communities like Y Combinator or AngelList are good for this. Then look at message boards, Slack channels, LinkedIn or Twitter conversations to see if these partners are engaging in topical discussions. See if they’ve written anything about the space. 

Then, and this is something you’ll do after you’ve already identified a list of “interested” individuals, start refining based on the personalities that would be a good cultural fit for your company. You might consider the following personality attributes as if they’re on a scale, and think about which styles you work best with:

  • Hands-on vs. hands-off
  • Hyper-analytical vs. gut feel

  • “Nice” vs. aggressive

  • Opinionated vs. open-minded

Another attribute to consider here is more about the dynamics within the firm: how do they make investment decisions? Some VC firms require these decisions to be approved by all members of the investment committee. Others allow partners to make decisions on their own. You might be thinking, “Why would I prefer to have a VC firm that requires an extensive approval process?” The answer is that this is how many of the top VC firms work. 

Finally, when you’ve narrowed the list down to three to five investors that you really want to work with, let those investors know that you’ve prioritized them. These investors get pitched like 30 times a week. They’re going to be willing to spend more time on companies put in the extra effort to show a real interest in working with them. 

Thank you

Today we announced our $4.3M seed round, and we launched our first product, ‘nflow. I’m celebrating the hard work of my incredible co-founders and teammates, and the support of our early seed-stage investors. And, of course, I’m celebrating the individuals who have raised their hands as people who feel the pain of the problem we’re solving and who are willing to be early users, providing early feedback and joining us along for the ride.