Entrepreneurial

Notes on raising seed financing

Chris Dixon

Jun 10, 2011 13:01 EDT

– Chris Dixon is the co-founder of Hunch and of seed fund Founder Collective. This blog originally appeared here. The views expressed are his own. –

I recently taught a class via Skillshare (disclosure: Founder Collective is an investor) about how to raise a seed round. After a long day I wasn’t particularly looking forward to it, but it turned out to be a lot of fun and I stayed well past the scheduled end time. I think it worked well because the audience was full of people actually starting companies, and they came well prepared (they were all avid readers of tech blogs and had seemed to have done a lot of research).

I sketched some notes for the class which I’m posting below. I’ve written ad nauseum on this blog (see contents page) about venture financing so hadn’t planned to blog more on the topic. But since I wrote up these notes already, here they are.

***

1. Best thing is to either never need to raise money or to raise money after you have a product, users, or customers. Also helps a lot if you’ve started a successful business before or came from a senior position at a successful company.

2. Assuming that’s not the case, it’s very difficult to raise money, even when people (e.g. press) are saying it’s easy and “everyone is getting funded.”

3. Fundraising is an extremely momentum-based process. Hardest part is getting “anchor” investors. These are people or institutions who commit significant capital (more than $100,000) and are respected in the tech community or in the specific industry you are going after (e.g. successful fashion people investing in a fashion-related startup).

Startup incubators multiplying like “mosquitoes”

– This is a Venture Capital Journal article that  appeared on PE Hub – both are Thomson Reuters publications. –

There’s no denying that an incubator rebirth is taking place, thanks in large measure to Y Combinator.

Y Combinator clones are everywhere. Several dozen of them already exist and insiders expect more than 100 such incubators will be operating nationwide before long. And they’re busy churning out plenty of startups. This past week, AngelPad held a demo day for its startups to pitch VCs, its second demo day in less than six months.

On April 7, Dave McClure’s 500 Startups Accelerator is holding two demo day sessions at its event.

As Senior Editor Mark Boslet reported in the April 2011 issue of Venture Capital Journal, one of the takeaways from the surge in incubator activity taking place is that the traditional VC process is undergoing change, and so is the fundamental nature of the business.

“Definitely a lot of things have changed,” said Y Combinator founder Paul Graham. “Whether VCs like it or not, the world of funding startups has changed from (old style) elephants (with few offspring) to mosquitoes” or incubators with thousands of young hatchlings.

“It’s on a different scale,” he said.

VIDEO: New class of startup aims for quick revenues

peHub‘s Dan Primack spoke with Reuters about a new kind of startup that’s designed to develop an idea and then be snapped up by a larger company.

As Primack explains, these startups differ from the traditional sort in that they tend to be interested in creating targeted web services or applications rather than conventional companies with longer-term growth ambitions.

“The hope for these companies isn’t to create the next Google or the next Cisco, the goal is to create a little application that Google or Cisco or Facebook or Twitter wants and then will purchase,” he explains.

Primack says startups of this new variety are often cheaper to start and run, and tend to realize revenues very quickly because they are designed to create a one-off service.

Many have been reared by Y Combinator, a Silicon Valley-based venture outfit that invests in young startups and helps them fine tune their applications or services.

Watch the interview with Primack below.