Picking the Right Approach to Seed Fundraising

Raising a seed round is a critical step for any startup. Choosing the right strategy is important to securing the funding you need.

While you may have a preference going into the process, your approach might shift as you engage with likely investors. It helps to know the available strategies beforehand and allows you to work around the process more practically and usefully.

There are two main paths to consider when structuring your seed round: securing smaller investors first or starting with a lead investor. Each has its benefits and challenges.

Option 1: Begin with Smaller Investors and Build Toward a Lead

In this approach, you’re attracting angels and smaller funds early in the process. Securing their participation, you generate social proof and momentum, so it’s easier to bring a lead investor on board later.

If no lead arises, you can also create a "party round." This is where a group of smaller investors collectively funds your round without a single lead investor.

Smaller investors sometimes agree to join the round on the condition that a lead investor steps in later. These are verbal commitments but you can use them strategically in discussions with possible leads. Even better, if you can get smaller investors to commit with an actual check, it provides concrete evidence of interest.

Offer a discounted valuation cap to early investors. This can incentivize them to commit quickly and give you a stronger foundation to attract larger backers.

This strategy usually works well for founders who have strong connections to angels or smaller funds. If your first positive response comes from one of these sources – it can naturally guide you toward this path.

The idea is to build momentum as soon as possible and use every commitment to feed further interest.

Option 2: Secure a Lead Investor First, Then Build Around Them

The alternative is to focus your efforts on getting a lead investor from the outset. A lead investor can add credibility to your round and help attract more participants.

In this approach you’ll have to mainly prioritize outreach to investors who are capable of taking on a lead role and signal your openness to negotiating terms.

Once you have a lead investor in place, filling out the rest of your round tends to become much easier.

• Ask the lead to connect you with investors they have successfully co-invested before.
• Reach out to funds that use data-driven methods to join rounds with established leads.
• Go back to conversations with other funds or investors who showed interest earlier but weren’t sure about committing without a lead in place.

This strategy works particularly well if you can identify a lead investor who matches closely with your vision and is enthusiastic about your business. Their involvement fits as a strong vote of confidence and encourages others to follow.

Choosing the Best Strategy for Your Fundraising Goals

Both strategies can be equally effective. So, your decision comes down to your specific situation. Some founders find it easier to start with smaller investors – especially if they have connections in that space. Others may prefer targeting a lead investor to simplify the process.

Your chosen strategy might change as you move along through investor discussions. What matters the most is keeping up the momentum and building a sense of urgency for potential backers.

One compelling way to do this is by setting a clear deadline for your fundraising round. Investors usually take as much time as they’re given. So, a well-communicated timeline can help keep the process moving.

Ultimately – whether you start small or aim directly for a lead investor – your ability to provoke excitement and present progress will make all the difference in successfully closing your seed round.

For more information, visit https://www.forumvc.com/pre-seed-fund

Gili is a passionate writer and curious thinker, dedicated to exploring a wide range of general topics that spark interest and discussion.