This is part of a series focused on raising the first batch of cash to finance your cool idea. When should you get seed capital? How much should you raise? Who should you got to for the capital? How do you value your startup?
What is the most important thing to remember when you raise your seed capital?
That is the most common question I get, so here is my suggestion:
Be prepared for a very painful test of your character.
- Most investors will turn you down. It is common to have zero investors interested even after you hang up the phone on number 20.
- You will feel insulted, put down, rejected. Part of this is how investors test how strong a person you are. And some investors are just plan nasty.
- Investors will let you down. Angels go on vacation without notice or start writing a book and ignore you. VCs will drop your nearly done deal because a better one arrived before they signed the check.
- It takes a long, long time to get a deal done. Plan on taking 6 to 9 months to raise your seed round. Sounds too long? Just ask serial entrepreneurs: that is typical.
- Competition is stiff. You have to compete for money against a lot more than direct competitors. Angels may be looking for a new jet. VCs are looking at Internet startups in different markets. Many things compete for the cash you need. All of them are talking to the same investors that you are.
- Prepare a support group for the long slog. Find friends and mentors who can talk to you frankly and frequently. They will help you when you get discouraged, off on the wrong trail and are becoming unrealistic.
- Know when to stop. Your idea may be too early or too late. Someone may have a better version of the same thing and be far ahead of you (but you did not learn that until an investor told you). Your idea may be awful. That's time to stop. Rethink the idea. Be realistic (ask your support group). Ending it can be the best thing you ever do.
BOTTOM LINE: Serial entrepreneurs know that raising a seed round is very challenging. It is what will test your character. How you go through the process will shape your character. It will be part of your soul. So treat the process of raising seed capital with high respect. Plan it, prepare for it, and conduct it so you emerge -- with or without seed capital -- with a stronger character, without damaging your ethics or personal reputation. If you have to stop, it's not the end of the world. Real entrepreneurs generate a new startup idea every day. So can you.