Finding your seed VC can be a daunting task for many startups, but it doesn’t have to be. Jyri Engerström from Yes.vc gave us a few tips during his keynote at Arctic15 Helsinki in June 2021.
The first step is showing traction, whether that is in terms of growth or fundraising. Nothing beats sales from a paying customer but there are alternatives to measure show traction if you are pre-launch and pre-revenue. This can look like products trending on social media or being a part of conversations on websites like Reddit for example. Traction can also already be seen pre-product, this is a method that more and more companies are using. By creating mock up landing pages, running advertisements they are able to gauge interest, determine needs based on trends and create waitlists. Jyri mentions that one of the companies Yes.VC has recently invested in started off this way.
We also of course have the traditional way of showing fundraising traction which will mainly be inbound interest from investors.
2- Sole returner?
The second step new founders have to consider is VC fund size & check size. When a venture raises a fund they are expected to return at least triple the amount of the initial fund size. For example, a $50M fund is expected to show a $150M return. What is important for founders to understand here is that most of the VC’s return will come from one company. To qualify for VC investment, the company will then need to have a credible path to be the fund’s sole returner. This is where founders have to ask themselves if they are ready and see themselves building their business to a massive exit. It’s important to realize that there are alternative paths to funding. Giants like Mailchimp have been funded solely with their customer revenue, starting on that path is a sure way of attracting VCs along the way.
Jyri’s last tip is essentially working on your network, it is always a bonus to be introduced to a VC by someone they trust and like to make deals with. It could be one of their portfolio founders or an angel.