A high-level overview of raising a seed round.

Unless you're flush with cash from a previous gig, most entrepreneurs need to raise money to fund their startup. The goal of this article to help you to accomplish this, or in the least share a few key factors to increase your odds of success at the seed round.

This information is derived from my experience in building a hedge fund, five years at a tech startup, and advising several founders on building their businesses. It is by no means exhaustive, but it is a first-hand account. Let's begin.

To be fair, there are (many) people that have more experience than I do, so I'd encourage you to first bookmark the following:

The above articles represent what I've found to be the crème de la crème of the fundraising literary diet (as far as articles go).

Let's start with some high-level pointers

  • Complete fundraising as soon as possible so you can return to building your product and company (the exception here is if the capital is a pre-requisite to building the business).

  • Once someone gives you the green light, move quickly: proceed to document signing and money transferring as soon as possible..

  • Ethics matter, and reputation is gold—therefore, don't f#$% anyone (especially if you're in Silicon Valley).

  • As Paul Graham says, “If the soda is empty, stop making that awful sucking sound with the straw.” Understand when a door has been closed, and part on good terms. Doors often reopen, especially in later rounds if you've grown successfully.

  • Arrogance will kill a deal. Always remember: you're asking for money.

  • Track your list of potential investors dutifully. Ask them how THEY would like to be communicated with, e.g. over coffee, emailed newsletter, via social media, sending a pitch book in the mail? Don't just email blast your stuff out because that's easier for you.

Set the stage ahead of time

Most human beings, including potential seed round VC investors, can sense desperation. It is sad, somewhat repelling, and a sure-fire way to raise zero dollars. The solution? Set the stage ahead of time.

Before you even THINK about proactively fundraising, contact the top seed and A-round investors with something to the following effect:

Dear Peter Fenton, I'd like to introduce myself to you and highlight what we're working on. [insert stuff about you - why you're a special snowflake] [insert stuff about your idea - why its unique and different]. At this stage of our growth, we are not currently fundraising. Nevertheless, we'd like to at least start a dialogue with Benchmark by providing periodic updates relevant to our business growth.  Sincerely, [You, not sounding desperate]

What happens next? Typically a VC staffer will create a file for you in their system. BINGO. You are now on file and can begin providing business updates (and eventually scheduling a pitch). Remember: set the stage ahead of time.

Work with the best

The best seed round is not necessarily the biggest or most notable investor. That would be nice, sure, but most entrepreneurs don't have that luxury. "The best" is defined by what your business needs for that time in its evolution. Ask yourself, what comes with the money?

  • Introductions to other investors?

  • A strategic advisor?

  • A new board member who's "been there before"?

  • Exposure to other portfolio companies to help figure things out?

  • Credibility?

There are many ways to define the best: perhaps you're looking for the most active VCs of Q1-2016? That would be: Sequoia, New Enterprise Associate, Lightspeed Venture Partners, KCPB, and Accel Partners. Or maybe you're interested in how VCs rank their peers, in which case you'd be looking at the likes of Sequoia, Benchmark, Accel Partners, Greylock, Andreessen Horowitz, etc. Lastly, who is on the VC Midas List for 2016?

But if you haven't yet been invited to sit at the big boys table, you're more likely to be courting close family members, successful friends, and past work colleagues. That's perfectly fine too—just keep asking yourself: what comes with the money? Can they help accelerate your growth beyond the checkbook?

The one cardinal sin

"There's really only one cardinal sin in business: running out of cash." - Ben Horowitz

Understanding cash burn is crucial. Come pitch time, the cash burn part of your financial model must be realistic and robust model including, but not limited to, headcount-driven expenses. Understanding the unit-level drivers of revenue is also critical once a company crosses into the revenue generation stage. Just remember that precision is not necessarily an indicator of accuracy.

Have a backup plan

Backup plans can include tapping debt lines, doing a bridge from insiders, reducing cash burn, and/or, in the worst case, doing a layoff (which is almost like raising a round). In general, having alternatives provide you leverage in the fundraising process.