The Seed Squeeze: 3 Ways Founders can Navigate the Fundraising Labyrinth of 2020
Fundraising has never been easy, what are investors looking for in 2020?
It’s clear that 2020 has thrown a wrench in the gears of startup fundraising; conferences are canceled, meetings are virtual and spontaneous, in-person investor/founder meet-and-greets are almost completely nonexistent. What’s less clear, however, are the right steps a founder should take to make the most of this virtual world, especially with regards to their fundraising pitch deck.
With larger funding amounts per round and more dollars per investor meeting on the table than ever before, founders in the modern seed round either sink or swim in the fundraising process, especially in this chaotic year.
Fortunately, DocSend’s new report on seed-level fundraising provides some helpful insights and guidance for startups on what constitutes a successful fundraising process. After looking at a year’s worth of data and input we uncovered a condition we call the Seed Squeeze — seed startup founders caught between the pressure of more discerning and decisive investors and increasingly demanding market expectations. Founders can learn from the experience of other startups to best navigate this situation.
Based on the trial and error data of 175 opt-in seed-stage founders, we’ve gleaned three steps fundraisers can take to maximize their chances of wowing investors and securing a term sheet.
Show investors your product is ready to roll (and don’t be shy about it)
When making your case to earlier-stage investors, your business model, team and “why now” sections of the pitch deck did a lot of the heavy lifting. But in the seed round, the state and viability of your “product” can make or break your pitch.
According to the report, not only did successful companies (those that achieved funding) have product slides 10 percent more often, they also had at least one more page of product details demonstrating traction than their unsuccessful (those who didn’t achieve funding) counterparts.
In this sense, “traction” refers to any measurement of product success: the number of people using the product, success in competitions, industry awards, credible testimonials, and other indicators. While 1.6 pages was the average length of the traction section for a pre-seed round, 2.3 pages was the average for successful seed rounds. Also, 75 percent of successful seed founders had demonstrable traction, as opposed to just 60 percent in pre-seed.
The bottom line is seed investors need to believe your company has made the successful transition from just a “good idea” to a profitable venture.
Don’t make the investor’s job harder, use a clear format
As an early-stage founder, a lot of factors are outside of your control, from your geographic location to your age and founding team size. While it’s what’s INSIDE your deck that matters, HOW you present your deck has a big impact on how potential investors digest your pitch.
The golden number of slides is 20. There are some instances where you might need more slides if your product or space is exceptionally technical, but that’s the number that investors prefer, according to the report.
By examining the most successful decks, we can gain a fairly clear picture of the ideal way to order your pitch deck. The chart below shows how often each slide was present in the given order in successful seed decks.
While a “why now?” section is important (and you definitely should include one if your business has had to significantly pivot since the pandemic), the timing of your fundraise takes a back seat to the product in the seed round. In the seed round, investors can generally trust that the proper “why now” vetting and due diligence has already taken place by earlier investors.
To reiterate the earlier section, it’s the product information that should take precedence in your deck, 87% of successful decks had a product section of 3.58 pages.
Plan your outreach well in advance, the stakes are getting higher for each meeting
Across the entire sample size, the average amount raised per meeting in 2019 was $52,600, an increase of almost 40% since 2015.
With more money on the table, contacting more investors may seem like a logical strategy, but the data shows that’s not the case. While it has the potential to garner more meetings, pitching more investors doesn’t equate to more funding. In the Seed round, there is a clear point of diminishing returns when contacting investors (it’s somewhere around 70).
In a chaotic year, focus on what you can control
For better or worse, the fundraising demands of 2019 have prepared seed-stage startup founders for the 2020 digital-first approach to pitching investors and closing deals. While very few founders planned for a pandemic to dominate the fundraising ecosystem in 2020, they were in many ways prepared to succeed under its virtual conditions.
Founders are by nature adaptable and should be able to read the room when necessary. With these data-driven steps, founders can ensure they’re putting their best foot forward in the seed round.
Unfortunately, perfecting your process is only half the battle. DocSend’s data uncovered a serious Funding Divide in the seed round that’s keeping many founders stuck on the sidelines. Read more about the challenges facing women and minority founders and what DocSend is doing to help here.
