How 2 Raise a Seed Round
The Blank Center recently had the pleasure of hosting Adam Martel M’17 and Rich Palmer M’16 of Gravyty, a firm that helps nonprofits raise more money and build better relationships with donors. In the last year, Gravyty raised a seed round and returned to campus to help Babson startups to do the same.
One of the first tips the Gravyty team shared was to spend time understanding the different elements in raising money. Although many entrepreneurs focus on the amount of investment, there are other factors to consider, including the amount of equity the investor will receive, how much they will be paid, who gets paid first, etc. It is more important to agree upon the logistics and expectations upon reaching a deal.
The audience asked about the importance of generating revenue between the business’ inception and raising seed money. Adam and Rich agreed that without first gaining revenue, you will face challenges. However, do not feel pressured to sell to and elicit feedback from non-target customers. Although investors will look for you to be revenue-generating, make sure you are selling to relevant customers rather than ones who will provide easy revenue and give you less-than-helpful advice. It is better to spend time defining your ideal customer, than just creating a marketing plan to reach that customer.
On a similar note, every time you speak with an investor, you need to be “de-risking” your business. Generating revenue is proof to investors that your business is on the right track. Other ways to prove your concept include a letter of intent, a high customer adoption rate, and/or a great team that has solved other problems before. These all help to validate your business.
Over Gravyty’s nine months of fundraising, they learned to dedicate their time to the type of investor that best fit their needs. They found that angel investors were a great option specifically for their business. Another strategy is to raise seed money with individual venture capitalists rather than the VC firm itself because the firms may have different expectations. Spend time learning how the dynamics and expectations differ between angel investors and VCs so you can decide where your effort will be best spent. Having the right investors can open the door to new connections and opportunities, so choose them wisely. To avoid constantly giving pitches but making no real progress, it helped Gravyty to pitch to investors within their industry. They recommend prioritizing investors whose interests align with those of your business.
At this point, the audience was wondering how Gravyty actually found their investors. Several of their Babson professors connected them with investors, so they recommend seeking help from faculty and staff on campus. They also suggest meeting with industry leaders and connected individuals, such as Babson’s Board of Trustees, because they are often more than happy to help students. Your Babson status is a valuable asset- don’t be afraid to use it!
Adam and Rich then shared how to build a great relationship with an investor, beginning with being coachable. While you should be able to defend your ideas, you should also know when to take a step back and accept others’ input. Try to solve “first person” problems that you understand deeply, rather than “third person” problems that you may be observing but have no experience with the true pain points. Finally, have realistic answers for what-if questions. They want to know how you will use the seed money!
Raising money is a difficult process. We hope that Gravyty’s advice helps you achieve success!