At long last, we are excited to announce that we raised a $500K seed round from a wonderful group of angel investors including legendary hedge fund investor Julian Robertson. Rather than a fluffy post about how we are going to change the world, the main focus of this post is to pull back the curtains and be transparent with the logistics of raising a seed round. The constant stream of headlines like "6-month old XYZ raises $500M" has created an environment of glorification and unrealistic expectations. The reality, particularly for seed stage and before, is much less sexy.
Delayed gratification is a core component of the startup life, and fundraising is no exception. Despite announcing the round now, we have been raising it for almost 9 months. We started raising back in January, had our first close in May, and had a handful of rolling closes leading up to the 'official' close in August. Why wait until now to announce the round? Under Rule 506(b), the SEC prohibits startups from advertising the ongoing sale of private securities to the general public. Our case was a bit different, as we had to file a notice with the Commission on Form D when we did the first close. Since Form D is a public document, various databases and local news outlets were able to find it and report on the round, even before we could.
While it is technically correct to say we raised a $500K seed round, we have never had $500K in our bank account at one time. In fact, around $125K of this round wasn't really even this round. We started by raising $50K from friends and family back in 2018, followed by another $75K from angel investors in 2019. Both of those investments were through SAFEs, which are essentially a form of convertible debt that mean instead of buying shares at a set price, investors are buying the right to buy shares at a discount when an equity round is raised in the future. Investors get lower prices for their earlier investment, startups save time and legal costs, and nobody has to try to value a pre-revenue company. That means the $125K we had raised pre-seed using SAFEs actually converted to equity in the seed round, so the amount is included in the $500K, and the true timeline of our $500K seed round was almost 3 years!
The other part of fundraising that is often ignored is the amount of work it takes. To give you an idea, I went ahead and calculated some statistics on what work we had to do to raise the seed round. I should mention that these statistics only include what we raised in 2020, not the pre-seed SAFEs that converted into the round. Here's what it took:
5 pitch decks
While that is a lot of work, it was not too bad in the grand scheme of things. There are plenty of hyper-successful companies that had to pitch 10X as many investors and hear 10X as many no's, and there are plenty of failed companies that got millions in funding with 1/10 the work. It all goes to show that the most valuable thing to any startup is knowing what you want to do, working backwards to calculating how much money you need (if any), and pitching investors that fit your stage, funding needs, and risk/return profile.