Raising A Seed Round in 2024, How to Learn to Love Rejection - Tactician #0060

"Have you tried to get funding lately? It's like going to a buffet five minutes before it closes. 'Sure, we have food left, but it’s mostly salad and Jell-O. The good stuff is gone, but you can fill up on bread.'"

19/02/2024

Raising A Seed Round in 2024

Tim De Chant, Senior Reporter at TechCrunch and Founder at Future Proof, guides entrepreneurs on the current seed funding climate, including investor expectations, round sizes, valuations, and offers strategic advice for successfully navigating seed rounds in 2024 in “Seed funding: Everything founders should know about fundraising, seed rounds and more for 2024”

• Evolving Definition and Expectations for Seed-Stage Startups

  • Investor Insight: "The definition of a seed-stage startup has been evolving over the years as round sizes and valuations creep higher."

  • Market Dynamics: “Investors are expecting to see a bit more from prospective companies, in terms of market fit and revenue...The pandemic is partly to blame...There was a lot of capital in the COVID era that came in."

  • Increased Scrutiny: “The bar is higher now...Investors are starting to ask diligence questions that in 2021 would have been Series A kind of questions.”

• Milestones for Seed Funding

  • Revenue Expectations: “I’m advising our portfolio companies that $300,000 to $1 million in ARR is strong to go raise a seed round...Three years ago, the high end of that was enough to raise a solid Series A.”

  • Proof of Concept: “While revenue is not required for deep tech startups, ‘substantive traction on the business side’ is...Investors also want to see a strong proof of concept along with a strong timeline to get to a pilot-scale demonstration.”

• Seed Round Size and Valuations

  • Current Statistics: “In December and January, median deal sizes were $2 million...with most falling between about $800,000 and $4 million. The median pre-money valuation was $10 million, and the majority spanned $5 million to $20 million.”

  • Market Adjustments: “Those valuations might be a holdover from previous years...She’s been seeing a lot of bridge rounds where the valuations aren’t updated.”

• Market Conditions and Outlook

  • Investor Optimism: “Though valuations might be inflated, investors remain generally optimistic about this year’s outlook. AI is a driving force...‘It’s no longer just buzz. There’s a lot of substance,’ Goldberg said.”

  • Investment Strategy: “No matter what the market looks like, though, investors are always looking for new portfolio companies...‘We have to make investments both in good markets and in bad markets,’ Goldberg said.”

• Tactical Advice for Founders

  • Comprehensive Preparation: “In 2021, you could raise off of one part of your story being really incredible...Now it feels like you need an amazing founding team and a compelling business idea and a good market and a little bit of customer traction.”

  • Strategic Fundraising: “‘Time it around an inflection point,’ Bannon said. Founders should start laying the groundwork well in advance...when revenue or customer growth starts taking hold, they’re ready to pitch.”

  • Understanding the Audience: “It’s important that founders know the differences between angels, seed funds, and larger venture firms...The best pitches...are those where the founders clearly show why they’re the best people to bring a product to life.”

How to Learn to Love Rejection

Khemaridh (Khe) Hy, CEO and Founder at RadReads, shares his personal journey of overcoming the fear of rejection and illustrates the importance of embracing discomfort as a means of personal and professional growth in “How I learned to love rejection”

• Acknowledging the Discomfort with Rejection:

  • "I hate rejection. I’m a people-pleaser. A social butterfly. A momma’s boy... If someone even insinuates that I’m not a good person – it hurts."

• The Consequences of Avoiding Rejection:

  • "So, as a result – I actively avoid rejection. And that has consequences. Avoiding rejection has made it hard for me to sell as an entrepreneur."

• Realization and Willingness to Change:

  • "But like a good high-achiever, I’m willing to change. I’m willing to put in the reps."

• Introduction to the Concept of Embracing Rejection:

  • "That’s when I discovered the book Million Dollar Weekend by serial entrepreneur (and podcast guest) Noah Kagan. He explains how this fear holds us back: 'The illusion of eventual pain that you associate with taking that risk...is a straightjacket on your potential.'"

• The Coffee Challenge as a Method to Overcome Fear:

  • Khe outlines a practical exercise known as the "coffee challenge," designed to desensitize individuals to rejection by encouraging them to routinely ask for a 10% discount in stores. 

  • "And to practice getting rejected, you need to…well…get rejected. A LOT. Which is where my 'Can I get a 10% off discount?' comes in."

• How it Works:

  • "Here’s how you do it:

    • Any time you go to a store, you ask for a 10% discount

    • The cashier will look at you dismissively.

    • You don’t flinch (or in the beginner version, you say, “I’m doing this as part of a class on learning how to sell.”)

    • You leave"

• Personal Growth and Embracing Rejection:

  • "And let me tell you, once I got over the awkwardness – a sense of aliveness coursed through my veins. In fact, I’ve now done it 3 times – and aiming for 10."

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