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How much should you raise in a seed round?

I've seen a few companies willing to invest somewhere in the neighborhood of 150k for a stake in the company. This would provide some working capital, but I'm asking myself would this be enough to fund a startups operation for 6 months with an office and 2 to 3 people? Probably not. Or maybe I'm missing the point of this stage of investment. Is it meant to allow finishing an app from an MVP to a true market ready product? Perhaps get it to a point where it would be more suitable to get a higher level of funding? Any advice would be truly appreciated.

17 Replies

Joe Mellin
2
0
Joe Mellin Entrepreneur
View My Learnings
Dude, if you are spending 20k a month on an unvalidated product that would worry me quite a bit. If you can get 150k pre traction, I would take it. The move to Portland, live in a house with your cofounder and have a budget of 6k per month.


Mohammad Forouzani
0
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Mohammad Forouzani Entrepreneur
CEO at Forecast.net
The short answer is that yes it would. Remember at this point, your team should really be made of founders, who dont get market rate salaries at this stage of the company.

It should allow you to validate the idea and start getting traction (or simply grow your traction), at which point you can raise the next round.
cbgsfghjsfhjs arggadghA
3
0
Brightway Insurance & KnowMyNestegg.com

I could do a lot with $150k but to use it on anything other than product and sales would be foolish.

At this stage in the game there is no need for an office, and any co-founder that wants to be paid should be replaced. co-founders get paid when they build a successful set of systems that offer value to everyone else. co-founders get paid last.

buying input data, testing marketing/sales channels, getting customer feedback, iterating on the beta,

The goal is to achievesome kind of proof of concept with $150k and if you could get any cash inflow going that would be great also.

Bar Segal
1
0
Bar Segal Entrepreneur
Partner at Paloma Oro
Hi John,

In my start-up Eatro, we are three co-founders and friends who live together. Our goal is to raise 100K GBP for around 16% equity. This will cover the development of an App for Android and IPhone, a final version of our website, Marketing, Sales and a bit of living expenses. It doesn't cover salaries or office space. To ask for anymore at this stage would be giving away too much equity at our current valuation. So like the previous comments say, it's mainly to get traction.
Dimitry Rotstein
0
0
Dimitry Rotstein Entrepreneur
Head of R&D at SafeZone
What to do with $150K depends on a lot of factors:

1. What kind of a startup is it? You may be able to build a software product for $150K, but probably not hardware.
2. What kind of people do you need? 2-3 first class engineers creating an innovative product costs very differently from 2-3 college students sitting part time on customer support.
3. Where is the office located? In US $150K may not be as much as in some other countries.
4. What exactly does your startup need? Office space? A lot of storage/traffic? Production unit? Customer support? This one coupon portal startup made $15M exit with no investment, because their expenses were $1K per month on average and the founders paid everything by themselves. An image storage startup paid Amazon Cloud alone $35000 per month and despite receiving six figure investment they went bankrupt. Like I said, it depends on so many things.

Generally speaking, $150K is probably not enough to start hiring full-time employees, but it can indeed be enough to rent office space for the founding team, support the founding team for like a year so that they could concentrate on the startup, hire freelancers and service providers, do a nice marketing campaign, etc.
Shannon Code
0
0
Shannon Code Entrepreneur
Chief Architect
As an Entrepreneur with a day job and a handful of contacts I'm in a position where I would need 6 months salary to a years salary in order to stop the day job, and not be required to take contracts. That would eat up an investment of $150k in ~6 months if I add in expenses related to licensing, tools, etc. I'm in this position at the moment. I have a few great proof of concepts and no time to work on them because of my job and contract work. Stopping those means my mortgages don't get paid.

Will an investor invest this kind of money for the reason of paying the primary stakeholder? I thought I could generate this kind of investment fromcrowdfundingbut learned the hard way that crowdfunding is much more than just listing your offering on indiegogo, The successful campaigns market, market, market.
Steve Karmeinsky
0
0
Steve Karmeinsky Entrepreneur • Advisor
CoFounder City Meets Tech / Lean Capital Ltd / Placeholder Ltd
In the UK there are massive tax incentives for investors (SEIS scheme), where a company can raise up to ?150K and a HNW can invest up to ?100K per year, the investor can right-off ?50K income tax and another ?14K capital gains tax - so for a ?100K investment the government is writing off ?64K - obviously only makes sense for people who have those types of tax liabilities.

Start-up costs are very low and that can easily get you to an MVP (at least for a web based service).

There are also other tax breaks for investors (say EIS, not quite as generous) where the investment limits are higher. So get SEIS to MVP, then EIS to get product out there.

Steve
Shannon Code
0
0
Shannon Code Entrepreneur
Chief Architect
SEIS to MVP, then EIS What are these Acronyms?
John Sechrest
1
0
John Sechrest Entrepreneur • Advisor
Mentor at Startup Mentor
It really depends on your investors and different regions have different expectations. However, most Angel Groups that are investing 100K+ are looking to see that you already have traction with a market and already have the foundation of your team and that you already are moving forward with the product. So the seed investment is aimed at accelerating initial market growth. This is significantly different than the early original idea for seed round investments, where the investment was building initial infrastructure to make it possible to get traction. However, the cost of starting a company for many companies has come down so radically, that many investors are expecting that you have already moved forward with initial customer engagement before the Angel Round at 100K. Two guys + a coworking space + no salary is somewhere around $12K for a year. If you as an entrepreneur do not have the personal warchest to support your lifestyle for the initial 12-18 months without a salary, then there is some refocusing and rethinking that should happen. Perhaps the initial focus should be to gather a warchest to make starting the company more likely to succeed. What investor wants to invest in a company, where the chances of loosing the principal players is likely the first time that you hit some kind of revenue crisis?
Rob Gropper
0
0
Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
at this stage money is like earplugs. If this $150k is coming from experienced investors (VS friends and family) the expectation will be that 2-3 guys and a dog have already been hunkered down in their respective caves and/or a cheap co-working space and built an MVP that the sales guy (team should have dev and sales min.) has already used to test market/customer fit (pricing, distribution, etc.). A couple of Stanford PhD candidates (or MIT or Harvard) with a great idea is another animal that can attract a small investment like this with nothing more than their idea and the proof that they are smart and focused and coachable (and some solid contacts) - an aqui-hire is the investor's fall back. For the rest of us mere mortals investors are looking for proof, not promises, that you are resourceful, so passionate that you are willing to forego the comforts to achieve your dream and that you have proven (to some extent) that a market exists with customers who are actually using if not paying for your product (traction). Necessity still is the mother of invention. Friends and family could be a different story, but if you are expecting to get paid to experiment with someone else's money and to pay for luxuries such as office space with your F&F's money then you many not have friends or family left in the end. Coming from someone who has had the luxury of funding his own startups i can say that even if i had the $$ to pay for salaries and office space for this my 4th startup, i would not do it again (with few targeted exceptions). There is something about the discipline and resourcefulness enforced by the lack of $$ in the bank account that forces adherence to lean principals. If you CANNOT pay some PR or marketing or sales person to go out and 'generate' interest in your product that forces you, the founder, to go out and do it yourself and this lesson is invaluable. If you can't pay a developer to build your product then you have to go out and convince a developer to forego the luxuries and do it for equity (this is one of the very few exceptions, but use caution here too and adhere to a very rigorous budget if you do pay for dev and only after you have proven market/customer fit and revenue model YOURSELF). The result is the market is telling you something - something about your product, your skills, your pitch, etc. and you NEED to listen. Money in the bank provides the fool's luxury of proceeding despite what the market tells you.
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