Seed money (the first capital that a startup raises) is the impetus for any innovative startup. Raising this initial capital often provides new energy and a sense of urgency for entrepreneurs. However, when raising seed capital, founders often overlook the importance of having an aligned vision with their early investors.
In this entry, I'll explain some of the do's and don’ts when it comes to raising seed capital, and how to attract seed investors who share your long-term vision.
Do: Respect the money
First and foremost: Respect the money. Too many entrepreneurs overlook the fact that seed investors typically take on the highest risk. As your company evolves, make sure that you never take the contributions of your early investors for granted—without them, your business simply wouldn't exist. It takes a special type of risk tolerance to provide seed funding. They are, in my view, the unsung heroes of the startup world.
Show them the respect they deserve by providing consistent updates and education on the progress of your company, which is their investment.
Do: Avoid short-term money
Every startup must act with a sense of urgency, but too much urgency can be disastrous to a venture’s growth. This kind of "Doomsday Clock" mentality is typically created by short-term investors who apply unwarranted pressure on founders in an attempt to bend company timelines for their personal gain.
Look at seed capital as the dowry for a commercial marriage—you're tied to each other for the long-term, through sickness and through health. Make sure your seed investors are in it for the long haul.
Don't: Partner with someone just because they have deep pockets
Never partner with someone solely because of how wealthy they are. I’ve witnessed numerous well-to-do seed investors sit on their hands when they were needed most.
Don't: Overpitch your timelines
Make sure you provide realistic timelines when pitching your startup to potential seed investors. If you believe it will take 15 months to commercialize, you should err on the side of caution and project 18 months instead. Murphy’s Law has shown us time and again that commercialization timelines (as one example) take longer than planned.
Planting The Right Seeds For Your Startup’s Future
Raising seed capital is about more than getting your company the funds it needs to grow; it's about finding the right people who can help with your growth plan. By keeping the four aforementioned do's and don'ts in mind, you’ll be better equipped when choosing your initial investors.