As an early-stage venture capitalist interested in SaaS startups, I often get this question, “What is the minimum necessary to secure pre-seed venture funding?”
Recently, we have seen investors move earlier, investing in startups that are often nothing more than an idea and a logo. Growth-stage investing is collapsing before our eyes, pushing more and more venture capitalists into early-stage startups.
This migration has been good for the founders, but it has also created a tremendous amount of foam, competition, and ratings that are, frankly, ridiculous.
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So, if you’re a founder looking to launch a startup into these favorable dynamics, you might be interested to know what exactly pre-stage/seed venture capitalists consider to be the minimum necessary to write the check.
the magic ticket
The first and foremost thing venture capitalists look at is the founder. Founders must have a unique point of view about a niche area of the tech ecosystem. That could represent a wide range of ideas, industries, etc., but it must be unique, show obvious value, and be an actionable vision. Even if your company is nothing more than an idea and a logo, the vision must be clearly articulated.
Founders need to be able to share this vision in a way that is easy to follow, makes sense, and has a clear path to becoming a real value-adding company. Even if that roadmap lasts for many years, founders need to be able to explain where they are now, what they need to get from point A to point B, and eventually points C to Z.
This roadmap should include expected obstacles, resistance points, and expectations for growth and impact. For technical founders, this might be a bit easier because the product roadmap is easier to identify and build on.
After evaluating and believing in that vision, venture capitalists will want to see the background of the founder. Previous initial experience is hugely beneficial for obvious reasons, with network validation coming a close second, especially for first-time founders. I’ve found that founders with extremely strong networks have other proven people who can attest to their ability to execute. For first-time founders, this is essential.
Even once a VC is sold on their vision, they’ll want to assess their ability to execute. Having people who have proven their ability to do this in your corner is essential. If a VC sees someone they know is capable of building a company singing their praises and believing in their ability to operate at their level, they will invest with confidence. Quantitative metrics, experience, and industry experience can only persuade venture capitalists so far; they rely heavily on people they trust to point out which founders have the right stuff and which ones don’t.
All of this can be surmised in the most important quality founders need to secure early-stage funding: storytelling. Before there is a product and a sales team, there has to be a story that people can get behind. Venture capitalists will often assess a founder’s narrative through the lens of a client, other investors, employees, and advisors. Can this founder convince all these stakeholders that his vision is sound and that they can deliver on the promises they are making?
This narrative isn’t just about the product, it’s about blending the founder’s personal life experience into the ambitious vision and ultimately tying it all together in the product roadmap. Successfully share that compelling vision and sprinkle some network validation on top, and you have a recipe for early-stage venture fundraising.
Marc Schroder is the managing partner and co-founder of MGV, and is focused on working with world-class technology entrepreneurs and establishing the MGV legacy. Before co-founding MGV, Schröder served as head of global sales at the Mashmeyer Group and was an investor in Seed companies + speed. Originally from the Netherlands, he grew up in South Africa and graduated with a law degree from Bertolt-Brecht University.
Illustration: Dom Guzman
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