Some generalizations on pre-seed and seed level startup fundraising

1. How to raise some money?
Mika Marjalaakso
Founder Institute
March 31, 2016

2. My Background
• I have raised 20+ funding roundings and helped my
fellow entrepreneurs raise venture capital north of
+50musd. Mainly pre-seed, seed stage, some Series
A and Series B.
• I have never failed in any of my fundraising efforts.
Ever.
• Am I so good? No I am not. So, what’s the secret
then?

3. It is relatively easy to raise money for
a company that is fundable. It is close
to impossible to raise funding to a
company that is not considered as
fundable.
So – focus on making your company
fundable.

4. Three things that are essential for a
company to be fundable
• The Market (space)
• The Product
• The Team

5. The Market
• Some markets are simply too small to justify a VC
level investment. They might still be good
opportunities for a lifestyle company, or an angel-
funded feature that is either sold or reaches
breakeven at relatively small amount of money
(<1m€).
• Some, many actually, are extremely overcrowded.
• Some markets are not ready right now.
• Some markets require a Minimum Viable Product that
is too large and too risky for a startup.

6. The Market continues ...
• So, what’s the big enough addressable market for a
venture funded startup?
• It really depends on the underlying characteristics.
• Typically the overall global market should be north of
10musd and your addressable market more than a
billion as you enter the market. So that owning 10%
slice of the addressable market makes a 100musd
revenue company.
• If your market is either a niche or totally new market,
you can start with total addressable market of few
hundreds of millions (or zero), but then the
expectation has to be that you will quickly (because
of the comp. adv.) become an undisputed market
leader.

7. The Market continues ....
• Some market spaces offer tremendous potential for
pivoting.
• Some markets are very rigid and you only have the
initial product / go-to-market angle and should that
fail – there is nothing else to be tried out.
• Investors’ love markets that structurally, if everything
goes well, do not present hindrance to hyper growth.

8. “When a management with a reputation for
brilliance tackles a business with a reputation for
bad economics, it is the reputation of the
business that remains intact.”
Warren Buffett

9. The Product
• Normal evolutionary path: feature, product, company.
• Don’t be afraid to start up with a feature as long as
you have constantly evolving map on how to move
onwards from the initial feature.
• The product shows to the team itself and the investor
that this specific team can actually build something
together beyond PowerPoint slides. It reduces
investors’ perceived and actual risk.

10. The Team
• Timing and market are far more imporant
determinants of a startup super success than a team
but they are way more difficult to measure in the early
days.
• Team is a qualifier. Without a good and dedicated
team, everything will go south quite quickly.
• Timing and market are winners, but they necessitate
a good team as a qualifier.

11. What are the high level requirements
for a great team?
• They must be able to swiftly execute against the
market opportunity. Each opportunity is distinct and
calls for a different composition and backgrounds for
the ideal team.
• The ideal team composition changes over time as the
company evolves and fine tunes its direction, as well
as increases the maturity in the given direction.
• The market is competitive; the team must be able to
go-to-market on a timely manner against the
competition. Quality product at the right time and
place.

12. Ideal Team Simplified
• Key roles and complemetarities
• Culture (right roles and skill sets mean nothing
without a great culture)

13. Key Roles (in a random tech company)
• Someone to lead the whole: CEO
• Someone to define and product: VP, Product
• Someone to deliver the product: VP, Engineering /
CTO
• Someone to sell the product: VP, Sales
• Someone to market the product: VP, Marketing

18. So, you have a fundable company –
then what?
• You must be able to present your fundable company
in a form of story with interesting narrative.
• You are also going to need the investor deck (10
slides).
• Substance is far more important than images and the
color of the lines.
• Exact revenue figures – nobody believes in them.

19. So, you have a fundable company and you
can document it nicely, then what?
• You need to be able to sell. If you are a boring
person and can’t inspire your investors with a
fundable company (in terms of its narrative etc.) –
guess what?
• You just became a loser.
• CEO together with his / her team must be able to
inspire and lure the investors with their combined
charisma.

20. Fundability, Deck, Selling ... anything
else?
• Yes – the process. Mastering the fundraising process
even at pre – seed / seed level offers a fundamental
advantage.
• It will greatly speed up the closing of the round.
• It will max the valuation.
• And most importantly, it will increase the likelyhood of
getting money in the first place.
• What’s the process then?

21. The Process
• Build a prioritized long list.
• Approach the list with a teaser first to disqualify the
one’s who do not get the full deck.
• Find the lead investor. Don’t share the name of the
lead investor ever. Don’t let anyone to start building
syndicates.
• Specify the ask, deal terms and provide a timeline.
• Close the deal.

22. Typical problems in fundability
• Market is too small or overcrowded
• Team composition sucks; e.g. product lead missing
or not good enough
• The equity pie has not been divided fairly or is
otherwise weird
• Issues with team culture (e.g. independent comboys)
• Lack of laser focus (product, business model, go-to-
market)
• In between stages in future funding rounds

23. Key Takeaways
1.Become fundable my friend.
2. Create a compelling deck.
3. Inspire your investors.
– Passion
– Likeability
– Humble to learn yet determined to
execute and win
4. Master the fundraising process.