So you want to build a high growth web startup? (Part 3)

by Startacus Admin

Raising your seed round will take you between 3 – 18 months. With StorkUp it took us almost exactly a year from announcing our intention to raise a seed round to getting the money in the bank. You should start this process as soon as you have a good story to tell, improving the story month on month by demonstrating progress in building out your MVP and validating your assumptions.

To meet investors you are going to need a foot in the door. Ideally this will come from personal introductions – ask other founders who have raised money to introduce you to investors they know. If you can’t get these so-called ‘warm intros’ then you are going to have to be extremely resourceful. In short you need to make yourself very interesting: write for startup blogs, get mega active on twitter, pitch at investor events, and don’t be afraid to be bold – you have very little to lose other than your dignity (and who needs that anyway).

Whatever you do, don’t pay money for intros or to pitch. It is never a positive signal, and will eat into your precious funds. Also, don’t expect too much of programmes run by anyone who doesn’t have a demonstrable track record in raising funds and/or getting companies funded. The same applies to pitching events that don’t offer an audience of active early stage investors and a very discerningly curated list of startups pitching.

If you are a Scottish-based business, you are probably going to have to look to London or beyond. Unfortunately, due to a historic lack of activity in web startups north of the border, very few local investors are comfortable dealing with this sector. You can look at some of the schemes on offer from the likes of Scottish Enterprise, but again be aware that their risk appetite can be incompatible with early stage web startups.

One potential avenue is to apply for one of the tech accelerators that offer an investment as part of the programme. In the UK, this means Seedcamp or Techstars London. Techstars London is new for this year and provides successful companies with 85,000 Euro – comprising of a 15,000 Euro investment for 6% equity and a 70,000 Euro convertible debt note from a consortium of VCs.

Even if you don’t get selected, taking part in the application process for these programmes can provide you with much needed introductions as well as some vital social proof. We reached the final half dozen of Seedcamp London in 2011 and it directly led to our successful seed round – as our investor contacted us after reading about our business in some media coverage of Seedcamp.

When applying for tech accelerators, you need to be capable of writing a compelling application. As with anything there is a right way of doing this, and if you want to read a great example, then check out Dropbox founder Drew Houston’s YCombinator application from 2007:
http://dl.dropbox.com/u/27532820/app.html

Your seed round can be enough to get your business to profitability and this is becoming increasingly common given how low the capital requirements for web startups are becoming (thanks to methodologies like lean startup, cloud hosting, PaaS and SaaS services, etc). If not, you will need to raise a Series A, which is something that is beyond the scope of this post…. Although once ours closes, I might revisit this topic!

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Published on: 14th May 2013