Fundraising
How to Get Seed Funding: The Ultimate Startup's Guide
Written by
Lineke Kruisinga
Published on
September 11, 2024
Written by
Published on
You’ve successfully launched your MVP and are beginning to see the first signs of traction. Now, the real challenge begins: scaling. This often involves upgrading your equipment, expanding your office space, and growing your team. But more importantly, it means fueling your growth—and that usually requires securing outside capital.
After the initial phase of Pre-Seed funding, which we discussed in our previous article How to Get Pre Seed Funding | The Ultimate Startup's Guide, the next critical step is Seed funding. This round of funding is crucial as it provides the essential capital needed to scale your operations and take your startup to the next level.
In this brief guide, we’re breaking down what every startup founder needs to know about raising Seed funding to get your startup company off the ground. If you’re a founder gearing up to raise your Seed round, our guide below is here to help.
After the Pre-Seed stage, the next milestone is Seed funding. Seed funding helps transform an idea into a functioning company by providing the necessary capital to build out products, hire key team members, and expand market reach.
Seed funding and pre-seed funding may seem similar, but they serve distinct purposes in a startup's journey. Pre-seed funding is often the very first step founders take when they are just getting their idea off the ground. At this stage, the focus is on transforming a concept into a viable business. Founders often rely on personal savings, support from friends and family, or bootstrap methods to cover early expenses.
After securing seed funding, startups can move on to raising more money through additional funding rounds, like Series A, B, and C.
Read more on types of funding:
Seed vs. Series A: a Showdown of Funding Rounds
From Seed to IPO: A Comprehensive Guide to the Different Funding Types for Startup Businesses
Seed funding often makes a bigger impact on a startup's success than later investment rounds, despite typically being a smaller amount. Here's how seed funding shapes a startup's future:
Laying the Foundation
This early investment helps startups set up critical operations, bring in key team members, and kick off product development. It's the foundation on which everything else is built.
Driving Early Growth
With seed funding, startups can focus on refining their product or service and start building a customer base. This initial growth is essential to show potential for scalability and long-term success.
Opening Doors to Future Funding
A successful seed round not only brings in capital but also validates the startup in the eyes of future investors. It often paves the way for more significant rounds, like Series A, proving that the startup is more than just an idea—it's a viable, growing business.
Gaining Valuable Partners and Mentors
Seed investors often offer more than just money; they bring advice, industry connections, and mentorship. Their guidance can be crucial in overcoming the early challenges of running a startup.
Maintaining Flexibility
Seed funding usually comes with fewer strings attached, giving startups the freedom to experiment and pivot as needed without the heavy expectations that come with later investment rounds.
Building Credibility
Receiving seed funding serves as a stamp of approval, enhancing the startup's credibility with customers, partners, and future investors. It signals that experienced backers see real potential in the business.
Raising money is all about the right timing and a solid pitch. Investors are ready to invest when they hear an idea that excites them, believe in the team’s ability to execute, and see a clear, large market opportunity. If you’ve got that, it’s time to start raising—and when you can raise money, you generally should.
For some founders, a good story and a strong reputation might be enough to attract funding. But for most, you’ll need a clear idea, a working product, and some early signs that customers are interested—what’s known as traction. The good news is that today’s tech tools allow you to build and launch a product quickly and cheaply, even if it’s hardware.
But just having a product isn’t enough. Investors want proof that your product fits the market and that it’s growing. So, when should you start looking for funding? When you’ve identified your market, know who your customer is, and have built a product that meets their needs and is gaining users quickly. A growth rate of about 10% per week for several weeks is the kind of traction that catches investors’ attention.
Your goal is to impress investors. If you can do that with just your pitch and team, that’s great. If not, keep working on your product and talking to users until you can.
⏩️ What is product-market fit? What startups need to know
When investors start taking meetings with you, it’s a sign of interest—but that’s just the beginning. At the seed stage, they’re looking for a fully operational product backed by solid evidence of market demand. You need more than just a working product; you need sales data that demonstrates product-market fit and growing user interest. A good benchmark? Aim for at least 10% week-over-week growth.
Sustained sales growth indicates your startup has long-term potential. With investors meeting countless founders each year, those who present clear, compelling sales metrics arae far more likely to stand out.
Before you dive into pitch prep, ensure your sales data is not only accurate but also up-to-date.
Securing seed funding is about establishing trust between you and seasoned investors. Venture capital firms and angel investors won’t commit to founders with half-baked plans. At this stage, investors are considering putting in anywhere from $500,000 to $2 million, so they need to see exactly where that money will go, backed by data-driven reasoning.
Your pitch should include essential financial documents like:
If your financial strategy is well-articulated and transparent, you’re ready to start pitching.
⏩️ Startup Financial Planning: a Founders Guide
Early-stage startups typically operate with lean teams, but by the time you’re seeking seed funding, you should either have a slightly larger team or be poised for expansion. You’ve identified the key departments that need growth and can clearly show how additional roles will drive your company’s progress and align with its goals. Seed funding can provide the financial runway necessary to build out these critical positions.
Your business narrative is the thread that connects your initial concept, vision, and mission to your current growth trajectory. A compelling story not only conveys how your idea became a reality but also helps you build a personal connection with potential investors. As you prepare your pitch, make sure your narrative highlights how the core values of your company have fueled its growth and will continue to drive its future success.
Navigating the seed funding process can be challenging for first-time founders, but the right tools and resources can make a big difference. Below is a curated list designed to simplify your fundraising journey and maximize your chances of success:
Platforms to Connect with Investors
Educational Resources
Pitch Deck and Financial Modeling Tools
Legal and Compliance Support
Networking Communities
Pro Tips
By leveraging a curated database of potential investors and exploring valuable networking opportunities, you can position your startup for growth and make meaningful connections with those who believe in your vision. Below is a list of some top investors and networking opportunities to get you started.
➡️ Also interesting:
Founder-Market Fit | Pitchdrive
Startups often fail to secure seed funding when they can't convincingly demonstrate that their product addresses a real market need. Investors are looking for evidence that you’ve identified a clear problem and that your solution effectively solves it. If a startup doesn’t have paying customers or strong market validation, it’s hard for investors to justify putting their money into a concept that hasn’t proven it can gain traction or generate revenue. Without this crucial fit, investors won’t feel confident in the potential for scale.
Read more: Problem Solution Fit for Startups: How to Achieve Success
Even with a solid product, startups often miss out on funding because they struggle to tell their story in a compelling way. Investors need to understand why your product matters, how it stands out in the market, and what makes your team capable of executing the vision. Startups that fail to clearly communicate their value proposition, business potential, and long-term vision often lose investor interest. A well-crafted narrative is crucial for inspiring confidence and getting investors excited about your company’s potential.
Many startups falter in the fundraising process simply because they don’t understand how to navigate it effectively. This can include setting unrealistic funding targets, approaching the wrong investors, or not building relationships with potential backers early enough. Investors expect founders to have a clear strategy for how much they need, why they need it, and how the funds will be used to drive growth. Startups that lack a well-defined fundraising plan or fail to connect with the right investors at the right time often struggle to close a seed round.
Seed round funding isn’t just about getting capital; it’s about creating a process that systematically attracts and secures the right investors. Just as you’ve developed a structured approach to your sales and marketing funnel, your fundraising efforts require a similar level of strategy and discipline.
At Pitchdrive, we see fundraising as a parallel to the traditional B2B sales and marketing funnel. Simplifying it, the process involves three core steps:
To kick off your fundraising journey, it’s essential to clearly understand who the right investors are for your business. This involves knowing how your company fits into their broader investment strategy and how you can bring value to their portfolio. With this knowledge, you can systematically fill your funnel, nurture relationships, and ultimately secure the funding you need to grow.
Before you start hunting for investors, it's important to figure out who your ideal investor actually is. Think of it like knowing your target audience in sales—you need to understand who you're pitching to and why they’d be a good fit. This understanding helps you tailor your pitch and focus on investors who can offer more than just money, like valuable experience, connections, and guidance. Here are a few things to consider when shaping your “ideal investor persona”:
Once you’ve got a clear picture of your ideal investor persona, it’s time to start building a list of firms that fit the profile. Start by exploring tools like AngelList and Crunchbase to find potential matches. As you come across investors who seem like a good fit, add them to your list.
A simple Google Sheet is all you need to keep things organized—include the basics like the firm’s details, your point of contact, and any other relevant info. A good rule of thumb, suggested by Mark Suster, is to start with about 40 potential investors. Then, rank them into A, B, and C tiers—your “A” tier being your top picks and “C” tier being your backups.
By focusing on investors who align with your ideal profile, you’ll ensure that everyone on your list is a solid candidate, making your outreach more targeted and effective.
➡️ Also interesting:
Finding Founder-Investor Fit: A Key to Success
Pro Tips for Startups on How to Find Angel Investors
Angel Investors vs. Venture Capital: Key Differences Explained
Understanding and addressing the unique preferences of each investor is crucial to crafting a successful pitch deck. Investors vary in their focus, priorities, and preferred style of communication. By tailoring your pitch deck to align with these preferences, you not only demonstrate professionalism but also significantly improve your chances of securing funding.
Different investors specialize in sectors like fintech, health tech, or consumer goods. Highlighting relevant aspects of your startup shows you understand their focus.
Example: For a health-tech investor, emphasize your product’s impact on patient outcomes or cost efficiency.
Early-stage investors may prioritize your team, market opportunity, and vision, while late-stage investors often focus on financial metrics and scalability.
Example: Angel investors might value passion and market fit, whereas venture capitalists seek clear revenue growth and exit strategies.
Some investors prefer detailed financials and in-depth documentation, while others value concise, visually engaging presentations.
Example: A VC firm might ask for a comprehensive deck, while an accelerator may prefer a one-page executive summary.
When preparing a pitch deck, it’s critical to include the elements that investors look for to evaluate your startup’s potential. A well-structured pitch deck while addressing key business fundamentals. Here are the essential elements investors expect to see:
1. Title Slide
2. Problem Statement
3. Solution
4. Market Opportunity
5. Product/Service
6. Traction and Milestones
7. Business Model
8. Go-to-Market Strategy
9. Competitive Landscape
10. Team
11. Financial Projections
12. The Ask
13. Closing Slide
Now that you've got a list of potential investors, it’s time to start making those connections. This part can seem a bit nerve-wracking, but with the right approach, you can engage investors and boost your chances of landing that seed funding.
Before reaching out to investors, make sure your startup is ready by reading our guide on how to prepare for seed round funding.
Instead of cold emailing, a more effective approach is to leverage your network to find warm introductions. Start by looking into your first- and second-degree connections to see who might already know the investor or can introduce you to someone in their circle. A warm intro carries much more weight and shows that you’ve done your homework, increasing the chances of your pitch being taken seriously. Building relationships through trusted connections can significantly improve your odds of getting the investor’s attention.
If the investor is interested, they might ask some questions or set up a meeting. This is where being prepared pays off. Before the meeting, make sure you have a solid pitch deck that clearly explains your business, the market opportunity, your progress so far, and your financial plans. Your pitch deck should be engaging and easy to follow—stick to the key points that tell your story well.
Also, have a simple business plan ready. While the pitch deck gives a broad overview, the business plan dives deeper into your strategy and how you plan to make things happen. Be ready to talk about your market, competition, how you’ll make money, and how you’ll grow.
During the meeting, focus on the parts of your business that are most likely to catch the investor’s interest. Use what you know about the investor to highlight the areas they care about most. Share stories or examples that bring your vision to life, and be prepared to answer their questions clearly and confidently.
After the meeting, send a quick thank-you email. This isn’t just about being polite—it’s a chance to keep the conversation going. In your follow-up, briefly mention how much you enjoyed the meeting and share any new updates about your company.
Example:
Over time, keep the connection alive by sending occasional updates—like a short monthly or quarterly email. Share big wins, product launches, new team members, or any other milestones. Even if the investor doesn’t commit right away, staying on their radar makes it more likely they’ll consider investing later on.
Don’t just rely on emails—get out there and meet investors in person, too. Attend industry events, pitch competitions, and startup meetups where investors often hang out. Join online communities like LinkedIn groups where you can show off your expertise and connect with potential investors.
If you know someone who knows the investor, ask for an introduction—a warm intro is often more effective than reaching out cold. And if you’re part of an incubator or accelerator, use their network to help you get meetings with investors.
Finally, remember that building relationships with investors takes time. Not every meeting will lead to immediate results, but stay patient and keep at it. Keep refining your approach, growing your network, and following up. With persistence, you’ll set yourself up to secure the seed funding you need to take your startup to the next level.
Once you've got the basics sorted out, it's time to dive into the exciting part—negotiating your term sheet!
A term sheet is essentially a summary of the key deal terms for your startup's funding round. It’s what you present to your investors to outline the main points of the deal. Think of it as the roadmap that guides the rest of the process. Although it’s not legally binding, it gives everyone a clear picture of what the final, legally binding documents—like the Shareholders Agreement and Articles of Association—will look like.
Using standard documents with consistent terms can help speed up the process. Investors know what to expect, and you can focus more on the bigger picture rather than getting bogged down in nitty-gritty details. A seed investment can often be closed fairly quickly when everyone is on the same page, so having a well-prepared term sheet is a big advantage. It shows your investors what they’re getting for their money and sets the stage for a smooth closing process.
Read more about term sheets:
👉 Ultimate Startup Term Sheets Guide: Key Insights and Must-Know Tips
Convertible debt and SAFEs (Simple Agreements for Future Equity) are common instruments used during seed funding rounds, offering flexibility for both startups and investors. Here’s how they work and why they might be a fit for your funding strategy:
Convertible debt is a type of loan that converts into equity in the company, usually during the next funding round. Instead of receiving an immediate stake in your company, investors lend you money with the expectation that it will convert to shares at a later date.
Key components of convertible debt include:
This approach is particularly attractive for startups that haven’t finalized their valuation or want to delay equity issuance until a more significant funding round.
A SAFE is a simpler alternative to convertible debt, pioneered by Y Combinator. It offers investors the right to equity in a future financing round, but unlike convertible debt, it doesn’t accrue interest or have a maturity date.
Key components of SAFEs include:
Startup Financing 101: How SAFEs and Convertible Notes Work | Equity funding explained
Equity rounds are a more formal approach to raising capital compared to convertible debt or SAFEs. During an equity round, startups sell ownership stakes (shares) in exchange for capital, often aligning with significant milestones like scaling operations or expanding into new markets. Here’s what founders need to know:
Valuation
At the heart of any equity round is the company’s valuation, which determines the price per share sold to investors. Valuation reflects the startup's perceived worth based on factors such as market potential, financial performance, and growth prospects.
Pre-Money Valuation: The company’s valuation before the investment.
Post-Money Valuation: The valuation after accounting for the newly raised capital.
Ownership Dilution
Equity rounds dilute existing ownership stakes as new shares are issued. Founders need to carefully balance raising sufficient funds while retaining enough ownership to maintain control over decision-making and future rounds.
Equity Stake
Investors receive an equity stake proportional to their investment. For instance, if a founder sells 20% of the company in an equity round, investors collectively own one-fifth of the business.
Investor Rights
Equity investors often receive additional rights, such as:
Voting Rights: Influence over major decisions like mergers or leadership changes.
Liquidation Preferences: A guarantee to recover their investment (or a multiple of it) before common shareholders if the company exits.
An equity round is typically ideal for startups with:
This type of funding signals maturity to the market, as investors commit substantial capital with the expectation of long-term returns. Equity rounds also attract investors who seek a direct stake in the company’s growth and success.
Long-Term Partnerships
Equity investors are not just funding sources; they’re long-term partners in your journey. Look for investors whose expertise and networks align with your vision.
Terms Negotiation
The terms of an equity round are critical to defining your relationship with investors. Elements like board seats, voting rights, and anti-dilution provisions should be carefully negotiated to ensure they align with your goals.
Cost and Complexity
Equity rounds are more complex than early-stage instruments like SAFEs or convertible debt, often requiring legal counsel, financial modeling, and detailed term sheets. Be prepared for longer timelines and higher transaction costs.
Exit Implications
Selling equity affects the distribution of proceeds in a future exit or IPO. Founders must consider how equity terms like liquidation preferences and investor rights influence their share of returns.
Once you’ve sent out your term sheet and your investors are on board, it’s time to get those signatures. This part of the process is crucial—getting all your investors to agree and sign is what seals the deal. If any investors want to negotiate before signing, don’t hesitate to reach out to your Investment Expert for guidance. They’re there to help you navigate any requests and ensure everything runs smoothly.
After your term sheet is signed, the real work begins with the long-form legal documents. While the term sheet outlines the basic terms of the deal, these documents lock everything in legally. Here’s a breakdown of the key legal documents you’ll need to close your seed funding round:
If you’re raising a seed round, there are a few extra steps to complete:
Once all these documents are prepared, it’s time to get them signed. Make sure everyone who needs to sign does so promptly. This includes new investors, existing shareholders with voting rights, and the company’s authorized representative.
By understanding and managing these steps, you’ll ensure a smooth closing process for your seed round. And remember, if anything feels unclear, your Investment Expert is always there to help.
Read more about: How to prepare for the seed round funding
Ready to close your round? Awesome! Here’s what to do next. The funds are in, and you’re almost ready to close your round. But before we can officially wrap things up, there are a few final steps you need to check off. Here’s what you need to make sure is done:
Once these steps are complete, you’re all set to officially close your round!
Fundraising is a crucial, yet often challenging, part of the startup journey. The goal is to get through it as quickly and efficiently as possible, so you can focus on what really matters—building your company. This guide is here to help you navigate your first venture financing round, making what seems like an impossible task a bit more manageable. Once you close that round, it might feel like you’ve just conquered a huge mountain. But as you catch your breath and look ahead, you’ll see that the real challenge is still ahead—growing and scaling your business. Now that the fundraising is behind you, it’s time to get back to work and turn your vision into reality.
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