About a year ago, my company (Scripted.com) raised a $1 million seed round. I recently wrote about our experience for Techcrunch, and I got a lot of great questions from folks who read the article. I wanted to dive a little bit deeper into some common misconceptions about the process to help some entrepreneurs who are going through the process currently.
Myth 1: It Is Easy to Raise a Seed Round
When you talk to just about anyone outside of the Silicon Valley, there's this feeling that 20-somethings walk into a VCs office and magically walk about with $1M checks. This is absolutely not the case. Some perspective: I recently spoke to a VC friend who says that their fund, a seed fund, receives about 2,000 investment referrals per year. This particular fund does about 15 deals a year. If you factor in the unsolicited pitches this fund receives (another 3,000), the odds are not very good that you will raise from an individual fund. This is exactly why raising money is a numbers game -- expect to do at least 50 pitches (including phone calls) to seed funds and individual angels before you get your first commitment.
Myth 2: Positive Press Affects the Process
One question I received repeatedly after the TC article came out was related to press: "If I get published in TC or Gigaom, does it guarantee that I'll be funded?" Simply put, the answer is no. This goes for startups at any stage, but press is in no way correlated to how your company is performing (and investors are smart enough to realize that). We've seen countless cases of companies that fade away despite receiving mass market attention. Focus less on press, and focus more on execution -- your numbers are all that matters at the end of the day.
Myth 3: You Need a Lot of "Name" Investors In on Your Round
Chris Dixon wrote a great post recently about party rounds, and I'd add that it does not necessarily help to get "name" investors involved. The objective of fundraising is not to get really cool people with lots of connections in on your round -- it's to get folks in who understand your space, and can help you in a meaningful way. If what you are looking for is supposed "influencers" to invest in you, you may want to re-evaluate your process. A year later, I am glad we have investors behind us who send customers our way, and help us whenever we need it. Remember that you are not in the startup game to grab drinks with your investors, no matter what Bravo wants you to think.
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