Especially for the first-time entrepreneurs out there, a lot of times there tends to be some misconceptions about what it takes to land seed funding for your startup. Presupposing that your founding team does not include guys with massively successful startup pasts (such as founding a YouTube or even a Mint.com), the investor dance can be a challenging one. There are no hard and fast rules for exactly how this all works, but this will give you an idea.
It’s pretty rare that a startup secures significant seed funding from “outside investors” unless one of two things are true:
1) You’re part of “the network”: This doesn’t just mean that you know someone who can introduce you to a top angel or a VC. Really being in the in-crowd so to speak means that you might be a former PayPal employee and built a strong network there, or have lived in San Francisco for years and have become buddies with investors in your space that believe in you as a person.
2) For everyone else, it’s all about traction. Investors want to see that you have a working product you can show them, and even more importantly, that you have people using it and even paying you money for what you have created. Sounds simple, but in reality most startups take a significant investment of time and money before they get to this stage. And even once you get there, it is still an uphill battle demonstrating enough “proof” that you can scale your idea from 1,000 users to 1,000,000.
For young entrepreneurs, another way to try and tackle this problem is to check out seed development programs like YCombinator, TechStars and others. They’re a great way to get in the network and get a small amount of cash to get going. Whether you go this route or not, keep working your butt off, plan for the future and always do everything you can to keep your company afloat while you walk through the fire to the other side!
About the author
Corey Kossack is a Managing Partner at Game Change Ventures, focusing on partnering and consulting with startups in the areas of social media, consumer Internet and e-commerce. Corey is also an Operating Partner at Game Change Ventures’ first Internet startup, Addoway, a social marketplace that helps you buy and sell with your friends and the people they know. Formerly Corey was one of the world’s largest retailers on eBay, built a $1M company from scratch at age 23, has led multiple startups and received numerous awards for his entrepreneurial achievements.