10 Factors to Consider Before Raising a Seed Round
VC Realm
10 Factors to Consider Before Raising a Seed Round
Embarking on the journey of raising a seed round is a pivotal moment for startups. This article distills essential factors to consider, backed by insights from seasoned industry experts. It provides a straightforward guide to aligning business growth and market readiness for successful fundraising.
- Raise When Proven Ability to Generate Revenue
- Be Ready When Timing Strikes
- Evaluate Business Position Against Growth Targets
- Balance Traction and Growth Potential
- Focus on Tangible Outcomes and Milestones
- Achieve Product-Market Fit Before Raising
- Align Revenue Growth and Product-Market Fit
- Raise When Prototype Demonstrates Clear Value
- Seek Funding When Traction is Evident
- Validate Business Model and Market Readiness
Raise When Proven Ability to Generate Revenue
The best time to raise isn't when you need the money - it's when you've proven you know how to make money. I see too many founders rushing to raise because they're running out of cash, rather than because they've got a clear plan for scaling what's already working.
When I started my consultancy (and multiple other businesses), I could have tried raising money to grow faster. Instead, I focused on getting the fundamentals right first. We pivoted hard to bottom-of-funnel content, focused on revenue-generating activities, and proved our model worked. I've seen too many companies raise money before they understand their unit economics, and it usually ends badly. Early on in one of my ventures I spent $100k on content before I had any real revenue model - guess how that turned out?
The key factors you need to consider are:
1. Do you have repeatable, profitable customer acquisition channels?
2. Are your unit economics solid (not just theoretically, but proven with real data)?
3. Can you clearly show how more money will help you scale what's already working, not just experiment with what might work?
Make sure you're raising money to pour fuel on a fire that's already burning, not to try and start the fire. The strongest position to raise from is when you don't desperately need the money but can show exactly how you'll use it to accelerate proven growth vectors.
Be Ready When Timing Strikes
Here's a great quote I share with my clients on when to raise: "Timing isn't everything—but being ready when timing strikes is."
I've worked with 1000s of founders in the past 13 years, helping them raise different types of rounds, and what I've found is that raising a seed round is like launching a rocket—you can't fire it off the pad without enough fuel (traction, team readiness, product development), but you also can't wait forever, or you'll miss the window.
To determine the right moment, founders should ask themselves three critical questions:
Have you named the enemy?
Investors don't just fund ideas—they fund missions to solve painful problems. If you haven't clearly articulated the pain point, demonstrated how widespread it is, and shown that you can tackle it in a scalable way, it's too early. Your "enemy" should be crystal clear.
Is there evidence of a pull, not just a push?
Traction is the language of trust in early-stage investing. But traction isn't only revenue. It can be user growth, product adoption, or key partnerships. Investors want to see market signals that say, we want this—more, please!
Are you ready to lead the story?
Oren Klaff, in Pitch Anything, emphasizes frame control—the ability to guide the conversation so investors see you as a leader, not a seller. The right time to raise is when you've crafted your narrative: the problem, the solution, and the future, told through a lens of confidence, data, and vision. Investors bet on leaders with clarity.
My one recommendation:
Raise when you've created a sense of inevitability. Don't let neediness dictate your timeline—that's a fatal flaw. Instead, generate urgency by showing that with or without this investment, the train is leaving the station.
In simple terms:
Raise not when you need money, but when you've earned attention.
Seed rounds are for fuel, not victory laps.
Hope this helps!
Viktor
Evaluate Business Position Against Growth Targets
Determining the right time to raise a seed round involves considering several factors like market readiness, product validation, and capital runway. From my experience launching seven companies, including Profit Leap, I've learned it's crucial to have a clear value proposition and evidence of traction. For instance, when we developed HUXLEY, our AI business advisor, we waited until we had a solid prototype and initial user feedback to ensure investors saw real potential, which significantly increased our investment appeal.
One case study that stands out is a small law firm I mentored. They secured a 50% revenue increase year-over-year by carefully planning their seed round. They waited until they had consistently proven their growth via tangible milestones, like acquiring key partnerships and customer feedback that validated their service offering. This strategy minimized dilution and maximized investor interest.
My key recommendation is to evaluate your business's current position against its growth targets; align this with market opportunities. Use concrete achievements, customer engagement, and a well-prepared business plan to demonstrate your enterprise's potential. This strategic preparation will not only guide you in timing your seed round but also ensure it aligns with your long-term growth trajectory.
Balance Traction and Growth Potential
Determining the right time to raise a seed round is about finding the balance between having enough traction to show investors you're on the right path, while not waiting too long and missing out on the growth potential. Founders should consider factors like product-market fit, initial customer feedback, and revenue generation. If you've reached a point where your product is proving its value and you need capital to scale, it's likely time to consider a seed round. My key recommendation is to raise when you're confident in your vision and execution, but when you have a clear use of funds and a roadmap for scaling. Investors will want to see that you're prepared to use their capital wisely and that you've de-risked your business as much as possible before seeking significant outside funding.
Focus on Tangible Outcomes and Milestones
When considering the right time to raise a seed round, the focus should be on tangible outcomes and strategic milestones. I placed emphasis on leveraging Big Data at MentalHappy to identify emerging trends and unmet needs in mental health, which fueled our pivot to specialized support groups like "Write it Out." This pivot not only aligned with market demands but also increased retention by 25%, setting a compelling foundation for fundraising.
Another critical factor from my experience is demonstrating impactful and measurable results. At MentalHappy, we successfully showcased a 70% improvement in emotional stability and 90%+ attendance rates at virtual therapy sessions, which highlighted our platform's efficiency and scalability. These metrics were instrumental in securing investment and partnerships, leading to our inclusion in Y Combinator. I recommend compiling data that clearly articulates your value proposition and market impact, which investors find compelling during a seed round.
Achieve Product-Market Fit Before Raising
Determining the right time to raise a seed round involves assessing your company's needs and the market context. From my experience with FusionAuth and Cleanspeak, one critical factor is achieving product-market fit. You want to ensure your product addresses a genuine market need and that you've validated this with early users. At FusionAuth, we waited to raise funds until we had a stable product and a clear path to scaling our user base.
Another consideration is understanding your long-term vision versus short-term financial needs. My journey with FusionAuth has been VC-free, focusing instead on sustainable growth. This approach works if you can maintain enough revenue to support operations. For startups, it's crucial to balance the immediate cash boost from a seed round with the long-term equity implications.
Lastly, gauge your readiness to scale rapidly. A seed round should catalyze growth, not just keep the lights on. We reached seven-figure revenue by refining our offering and expanding our market reach, elements that funding can accelerate if timed well. Raising a seed round is as much about preparation as it is about timing the market dynamics.
Align Revenue Growth and Product-Market Fit
I determined the right time to raise a seed round when our revenue growth and product-market fit signals aligned with investor expectations. One key factor was traction—we had a strong user base with clear retention metrics, proving that customers not only needed but actively used our solution. Another major factor was scalability. We weren't just raising to survive; we had a roadmap showing how capital would accelerate growth—whether through hiring, product development, or customer acquisition. Timing also mattered: raising when we still had at least 6-9 months of runway gave us leverage in negotiations. My key recommendation? Don't raise just because you can—raise because you have a compelling growth story and a clear plan for deploying capital efficiently. Investors want to fund momentum, not desperation.
Raise When Prototype Demonstrates Clear Value
When I decided to transition from being an employee to starting my own photography business, the question of when to raise seed funding was constantly on my mind. I knew I needed capital to get my venture off the ground, but timing it right was crucial.
For me, the turning point came when I had a solid business plan and a prototype of my innovative photo editing software. I'd been working nights and weekends for months, pouring my savings into development. But to take it to the next level, I needed more resources.
I'll never forget the moment I realized it was time. I was showing my prototype to Ethan, a fellow photographer, and his eyes lit up. "This could revolutionize our workflow," he said. That's when it hit me - I had something valuable, but I needed funding to bring it to market.
Before approaching investors, I made sure I had:
1. A working prototype that demonstrated clear value
2. Early user feedback from photography peers
3. A detailed business plan with realistic financial projections
Most importantly, I had a clear vision of what I could achieve with funding that I couldn't do on my own. I needed to hire developers to refine the software, invest in marketing to reach more photographers, and scale up our server capacity.
I started reaching out to my network, and through a former colleague, I connected with an angel investor who specialized in creative tech startups. Our first meeting was nerve-racking, but her enthusiasm convinced me I was on the right track.
The key factors I considered were:
- Market readiness: Was there a clear demand for my product?
- Personal readiness: Was I prepared to give up some control and answer to investors?
- Growth potential: Could funding significantly accelerate my business?
- Runway: How long could I sustain the business without external capital?
My key recommendation? Don't wait for perfection. I almost delayed seeking funding because I wanted the software to be flawless. But I realized that investors aren't just buying your current product - they're investing in your vision and ability to execute.
Raising seed funding was challenging, but it allowed me to turn my side project into a thriving business. Today, thousands of photographers use our software, and we're constantly innovating. The journey from employee to funded founder taught me that timing isn't about waiting for the perfect moment - it's about recognizing when you're ready to take the leap.
Seek Funding When Traction is Evident
Determining the right time to raise a seed round is a pivotal decision for any founder. Start by evaluating your startup's traction, including user growth, revenue, and product-market fit. If you have a solid customer base and can demonstrate demand, it's a strong indicator that you're ready to seek funding.
Next, consider your runway. If your current funds are dwindling and you need capital to scale operations or enhance your product, it's time to start the conversation with investors. Additionally, assess market conditions; a favorable investment climate can significantly impact your success.
My key recommendation is to build relationships with potential investors well before you need funding. This allows you to gauge interest and receive valuable feedback on your business model. Raising a seed round should align with your growth strategy and ensure you have the resources to achieve your next milestones.
Validate Business Model and Market Readiness
Determining the right time to raise a seed round is crucial for any startup. From my experience founding UpfrontOps and leading tech companies, consider your business's operational milestones and market readiness. Ensure you have validated your business model with a proven product-market fit. At UpfrontOps, we waited until we secured partnerships with industry giants like AWS and Cisco, which provided validation and increased our perceived value to investors.
Another factor is your financial runway. Calculate how long your current resources will sustain your operations. When founding my educational technology startup, we landed a $250,000 contract with a large school district, which extended our runway and allowed us to focus on growth rather than immediate fundraising. Ensure you have a clear plan on how the seed investment will be used to scale operations and achieve your next milestones.
Lastly, track metrics that demonstrate growth potential, such as your Customer Acquisition Cost (CAC) and revenue growth rate. At UpfrontOps, maintaining a 73.3% year-over-year growth was a key indicator of our readiness. These metrics reassure investors of your business's scalability and can make your pitch more compelling.
