How to Get Seed Funding from VCs - The 2024 Ultimate Guide

Introduction

Venture capital (VC) funding has long been a lifeline for startups, enabling them to scale rapidly and innovate in a competitive landscape. However, securing seed VC funding is no easy feat, especially as the market evolves. In 2024, the VC landscape has become more nuanced, with investors becoming increasingly selective and founders needing to be better prepared than ever especially at the seed funding stage. This guide will walk you through everything you need to know to secure VC funding in 2024, from understanding the current market trends to preparing your pitch and finding the right investors.

Status of Venture Capital Funding in 2024 - Seed Funding and Above

Current Market Trends

As we step into 2024, the venture capital ecosystem has seen significant shifts. The market has become more discerning, with seed and growth VCs focusing on startups that demonstrate strong fundamentals, clear paths to profitability, and innovative solutions to pressing problems. The pandemic's aftermath and the ongoing economic uncertainties have led investors to be more cautious, yet opportunities remain abundant for startups that can prove their worth.

Key Data Points

Startup Failure Rates

When thinking about how to raise seed funding from VCs or angels, always remember this harsh truth: The high failure rate of startups is a critical consideration for both founders and investors. According to a recent study by CB Insights, approximately 90% of startups fail. The most common reasons include running out of cash, no market need, and being outcompeted. About 70% of startups fail within the first two to three years, underscoring the importance of early traction and strong fundamentals.

Types of VCs

The VC landscape is varied, catering to startups at different stages of growth:

• Seed-Stage VCs: Typically invest in startups with little to no revenue but with a strong team and a viable product concept. Seed-stage rounds in 2024 have an average size of $1.5M in the USA and €1M in Europe (Crunchbase).
• Growth-Stage VCs: These investors look for startups with proven business models and some level of revenue. In 2024, growth-stage rounds (Series B) average $15M in the USA and €10M in Europe (PitchBook).
• Corporate VCs: Often part of large corporations, these VCs look for strategic investments that align with their parent company's goals. These investments can vary significantly in size, depending on the startup and the strategic value to the corporation.

Valuation and Raise Size from VCs: USA vs. Europe

When thinking about seed raising from venture capital, it's important to know what sizes and valuations to expect. Here's a comparison of average valuations and raise sizes for different funding stages between the USA and Europe in 2024. This data is based on reports from PitchBook, Crunchbase, and Statista.

This table highlights the differences in market dynamics between the USA and Europe. The USA generally offers higher valuations and larger funding rounds, reflecting a more mature and liquid VC market. However, Europe is catching up, particularly in major tech hubs like London, Berlin, and Paris.

Regional Differences

The USA's VC ecosystem remains robust, with Silicon Valley continuing to dominate as a hub for innovation. In 2024, over $150 billion was invested in startups across the USA, with sectors like fintech, AI, and healthcare receiving the most attention (Statista). Europe, while smaller in scale, saw a significant increase in VC activity, with over €70 billion invested, driven by strong growth in sectors like deep tech and sustainability (TechCrunch).

To Raise or Not to Raise?

Not every startup is suited for seed funding or venture capital funding. Before diving into the process, founders must critically assess whether their business truly needs VC money or if alternative paths, such as bootstrapping, might be more appropriate.

Is VC Funding Right for Your Startup?

VC funding can accelerate growth, but it comes with significant trade-offs, including loss of control and the pressure to deliver high returns in a relatively short time. For some startups, especially those with potential for rapid scalability and large market opportunities, VC funding is essential. However, for others, particularly those in niche markets or those that prioritize sustainable growth over rapid expansion, bootstrapping might be a better option.

Consider Bootstrapping

Bootstrapping allows founders to maintain full control over their business, grow at a more manageable pace, and avoid the dilution that comes with raising external capital. This approach is often more suited to startups that can generate revenue early on and do not require massive upfront investment to scale.

To help you decide whether to raise VC funding or pursue bootstrapping, consider watching this insightful video: "Should You Raise Venture Capital or Bootstrap?".

Getting Ready for VC Funding

If you've decided that VC funding is the right path for your startup, the next step is to get your house in order. VCs are looking for startups that are well-prepared, with solid financials, a clear business plan, and a compelling pitch.

Understanding Your Historic Metrics and Targets

Investors will scrutinize your startup's metrics to assess its potential. The specific metrics that matter will vary depending on your business model:

• B2B vs. B2C: B2B startups should focus on metrics like Customer Acquisition Cost (CAC), Customer Lifetime Value (CLTV), and Annual Recurring Revenue (ARR). B2C startups should emphasize user growth, engagement metrics, and churn rate.
• Software vs. Consumer vs. Hardtech: Software companies should highlight their Monthly Recurring Revenue (MRR) and growth rates. Consumer-focused startups need to demonstrate strong brand loyalty and market penetration, while hardtech companies should focus on their technological advancements and intellectual property.

For more detailed examples and insights into the metrics that matter for your specific industry, consider visiting sites like SaaS Metrics for B2B SaaS companies or Consumer Insights for B2C startups.

Preparing Your Financial Model

A robust financial model is crucial for securing seed venture capital funding or growth funding. It should accurately reflect your business's current state and future projections, including revenue forecasts, expense projections, and cash flow analysis.

Key Basics of Financial Modeling

• Revenue Projections: Estimate your revenue growth over the next 3-5 years. Be realistic, as VCs will scrutinize these numbers.
• Expense Projections: Detail your operational expenses, including fixed and variable costs.
• Cash Flow Analysis: Ensure your model demonstrates when you'll reach breakeven and how much runway you have.

For those new to financial modeling, the following resources from MATH Venture Partners can provide valuable guidance:

• Startup Financial Modeling, Part 1: What is a Financial Model? - MATH Venture Partners
• Startup Financial Modeling, Part 2: Start with Your Assumptions - MATH Venture Partners
• Startup Financial Modeling, Part 3: The Income Statement and Custom Detail Tabs - MATH Venture Partners
• Startup Financial Modeling, Part 4: The Balance Sheet, Cash Flow and Unit Economics - MATH Venture Partners

Getting Your Deck Ready

Your pitch deck is your startup's story in a nutshell. It's the first thing investors will see, and it needs to be compelling, clear, and concise. Here’s a basic structure your deck should follow:

1. Introduction: Briefly introduce your company and what you do.
2. Problem: Explain the problem your startup solves.
3. Solution: Describe your product or service and how it addresses the problem.
4. Market Opportunity: Highlight the size of the market and why it's worth pursuing.
5. Business Model: Explain how you make money.
6. Traction: Showcase your progress so far—customers, revenue, growth metrics.
7. Go-to-Market Strategy: Detail how you plan to acquire customers.
8. Team: Introduce your founding team and key hires.
9. Financials: Present your financial projections and key metrics.
10. Funding Ask: Clearly state how much you're raising and how you plan to use the funds.

For a deeper dive into what makes a perfect pitch deck, check out this comprehensive guide from Slidebean: What is a Pitch Deck Presentation?.

Also, click on the image below to view some great examples you can follow!

Building Your Dataroom

A well-organized dataroom is essential for due diligence once you’ve piqued investors' interest. It should include all the documentation an investor might need to assess your startup thoroughly.

Importance of a Dataroom

A dataroom serves as a secure repository for all your critical business documents. It allows investors to access the information they need to evaluate your startup without requiring constant back-and-forth with you.

Key Folders for Seed Funding

For early-stage startups, your dataroom should include the following folders:

1. Corporate Documents:
2. Incorporation Documents: Articles of incorporation, business registration, and any amendments.
3. Cap Table: A detailed record of your company's equity ownership, showing how much each founder, employee, and investor owns.
4. Shareholder Agreements: Any agreements that outline the rights and obligations of shareholders.
5. Financials:
6. Historical Financial Statements: Income statement, balance sheet, and cash flow statement for at least the last 1-3 years, if available.
7. Financial Projections: Detailed forecasts for the next 3-5 years, including revenue projections, expense breakdowns, and expected cash flow.
8. Tax Returns: Copies of your company’s tax returns for the past few years.
9. Legal Documents:
10. IP Documentation: Patents, trademarks, and copyrights, as well as documentation of any pending applications.Contracts: Key contracts with customers, suppliers, and partners, including any licensing agreements.Employment Agreements: Contracts with key employees, including offer letters, non-compete agreements, and confidentiality agreements.
11. Product Information:
12. Product Roadmap: A detailed plan outlining the future development of your product.Technical Specifications: Detailed documentation of your product's technical architecture, including any unique technologies or proprietary systems.User Feedback: Surveys, reviews, and other forms of customer feedback that validate your product’s market fit.
13. Customer Information:
14. Customer Contracts: Agreements with your top customers, demonstrating revenue-generating relationships.Case Studies: Examples of how your product has successfully solved problems for customers.User Metrics: Data on customer acquisition, retention, and growth, providing evidence of your market traction.
15. Pitch Deck and Business Plan:
16. Pitch Deck: The presentation you use to pitch to investors, outlining your vision, market opportunity, business model, and financials.Business Plan: A more detailed document that expands on your pitch deck, including market analysis, competitive landscape, and go-to-market strategy.

By organizing these documents in your dataroom, you ensure that potential investors have everything they need to make an informed decision about investing in your startup.

There are free or cheaper options like Google Drive or Notion, even though we recommend going with a proper tool like DocSend or DealRoom for larger rounds. These tools allow you to control access, track views, and ensure that your documents are always up to date. You may view a deeper dataroom checklist in this DealRoom blog.

Investor Prospecting and Engagement

Finding the right investors is just as important as preparing your pitch. You want to target VCs who not only have the capital but also the expertise and network to help your startup grow.

How to Find and Contact Investors

Finding a contacting investors is a hard and long game, however there are different places and resources available that can be quite useful such as: tech events and conferences, open VC lists, closed networks and via accelerators

1. Tech Events and Conferences

Attending tech events and conferences is a great way to meet investors in person. These events provide an opportunity to showcase your startup, network with industry leaders, and potentially secure funding.

In the USA alone, there are hundreds of tech events annually, with some, like CES and SXSW, drawing tens of thousands of attendees. Europe is also seeing a rise in tech events, with an estimated 30% increase in tech-focused conferences over the past five years.

When attending these events, consider using digital business cards to easily share your contact information and pitch deck with potential investors. Platforms like KADO offer digital business card solutions that integrate seamlessly with your existing tools, making it easier to follow up after the event.

Some leading conferences in USA and EU include:

• TechCrunch Disrupt (USA) - A premier event in San Francisco where startups pitch to leading VCs. https://techcrunch.com/events/disrupt-sf/
• Web Summit (EU) - Held in Lisbon, this is one of the largest tech conferences in the world, attracting thousands of investors and startups. https://websummit.com/
• South by Southwest (SXSW) (USA) - An annual event in Austin, TX, combining tech, music, and film with a strong focus on startups. https://www.sxsw.com/
• Slush (EU) - Held in Helsinki, Finland, Slush brings together founders and investors in a unique, intimate setting. https://www.slush.org/
• Collision (USA) - One of the fastest-growing tech conferences in North America, held in Toronto. https://collisionconf.com/
• VivaTech (EU) - A major event in Paris, France, showcasing startups and innovation with a strong investor presence. https://vivatechnology.com/
• CES (USA) - The Consumer Electronics Show in Las Vegas is a huge event where startups in consumer tech can meet with investors. https://www.ces.tech/
• 4YFN at MWC (EU) - Held in Barcelona as part of Mobile World Congress, 4 Years From Now is focused on early-stage startups. https://www.4yfn.com/
• LAUNCH Festival (USA) - Based in San Francisco, this event is focused on helping founders get funded. https://launchfestival.com/
• The Next Web Conference (EU) - Amsterdam’s TNW Conference is a leading European tech event connecting startups with investors. https://thenextweb.com/conference

2. Cold Emailing

If you’re unable to attend events, cold emailing can be an effective way to reach out to investors. The key is to craft a concise, compelling message that captures the investor's attention.

A. How to write a cold investor email

Crafting the perfect cold email to a potential investor is an art. Here are some tips:

• Personalize Your Message: Start with a personal greeting and mention something specific about the investor or their portfolio that shows you've done your homework.
• Get to the Point Quickly: Investors are busy, so keep your email concise. Briefly describe who you are, what your startup does, and why it’s relevant to them.
• Include a Call to Action: Clearly state what you’re asking for—whether it’s a meeting, a phone call, or feedback on your pitch deck.

For a detailed guide on how to craft the perfect cold email, refer to this resource from OpenVC: How to Cold Email VC.

B. Where to Find Investor Emails

There are different resources out there where you an find investor emails, but beware with spamming! Never send unpersonalized blast cold emails to lists of investors; does not look good and will most certainly turn to a pass!

B.1. Open Lists

Finding investor emails can be challenging, but several resources offer publicly available lists:

• OpenVC - Provides an open-source database of VC contacts and guidelines on how to approach them. https://www.openvc.app/vc-lists
• AngelList - A platform where you can find investors and their contact details, especially useful for early-stage startups. https://angel.co/
• VC Database - A comprehensive list of VCs, including their emails and investment preferences. https://vcdb.io/

B.2. Networks

Several networks can help you connect with investors:

• OpenVC - This platform not only provides email lists but also offers tools to help you manage your outreach. https://www.openvc.app/
• Angel Investment Network - Connects startups with angel investors and VCs across the globe. https://www.angelinvestmentnetwork.com/

3. Participate in Accelerators to Boost your Network

Joining an accelerator can provide you with the mentorship, resources, and investor connections you need to scale your startup. Some of the most well-known accelerators include:

• Techstars - Offers a three-month program where startups receive mentorship, $120,000 in funding, and access to a vast network of investors. https://www.techstars.com/
• 500 Startups - Provides a four-month seed program that includes $150,000 in funding and access to a global network of mentors and investors. https://500.co/
• Y Combinator - One of the most prestigious accelerators in the world, YC has helped launch companies like Airbnb and Dropbox. They invest $500,000 for a 7% equity stake. https://www.ycombinator.com/

Investor Engagement

Once you’ve made contact with potential investors, it’s crucial to keep them engaged throughout the fundraising process.

1. Create a Timeline

Creating a timeline is essential for building momentum and keeping investors engaged. Set clear deadlines for yourself and your team to ensure that you’re hitting milestones. Share these deadlines with investors to create a sense of urgency and to keep your fundraising on track.

2. Prepare for Investor Questions

Investors will ask tough questions to test your knowledge of your business and your market. Being prepared with thoughtful, data-driven answers can set you apart from other startups. For a comprehensive list of common investor questions, refer to this article: 30 Questions Investors Ask During Fundraising.

3. Always Follow Up

It’s common not to receive an immediate response from an investor. However, persistence is key. Regular follow-ups demonstrate your commitment and keep you on the investor’s radar. Even if an investor passes on your current round, maintaining a relationship can be valuable for future fundraising efforts.

For more advice on what to do after meeting with an investor, check out this article: I Met With an Investor – What Happens Next?.

Conclusion

Securing venture capital funding is a challenging process, but with the right preparation and approach, it’s achievable. By understanding the current VC landscape, ensuring your startup is ready for investment, and effectively prospecting for investors, you can increase your chances of securing the funding you need to grow your business. Remember, the key to success is not just about getting the money—it's about finding the right partners who believe in your vision and can help you achieve your goals.

Good luck with your fundraising journey in 2024!