How to Raise a Seed Round in B2B


Tim Chaves, CEO of ZipBooks on How to Raise a Seed Round in B2B

This is a guest post by Tim Chaves.

Tim is CEO at ZipBooks, online accounting software for small businesses. Tim previously founded and sold two small businesses, and holds an MBA from Harvard Business School.
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Whether you’re a solopreneur or a team of founders, odds are, you’ll need funding if you want to grow quickly.

Fundraising is foreign territory to a lot of B2B companies—and inexperience can lead to regret. On the other hand, having a war chest is almost always a competitive advantage, so given the right terms, it can very often be worth the risk.

While fundraising is rarely neat and tidy, there are some steps that can help you raise a seed round with a bit more confidence.

Know if You’re Ready

If you want to have success raising a seed round, you’ll need to be ready first. So how do you know if you are?

First, you have more than an idea. I often see idea-driven founders trying to line up meetings with investors. Usually, this doesn’t work. Investors want proof (at the very least, hope) that your business is going to succeed. Research product-market fit by selling something, even if it’s not ready for the big stage. Gain some traction. Build an exceptional founding team. Investors need to believe that you are the only people who can capture this market potential.

Second, get some skin in the game. In some cases, you may need to tap into your own savings, but be cautious about being too aggressive with your own funds. Find novel ways to show that you’re all in, without betting the farm, especially if you have others relying on you. In my case, I built the first version of what’s now ZipBooks on the side while in grad school, and that was enough to get investor interest.

Third, practice telling your story. Start at the beginning, think back on the dream that birthed your company. Your origin story gives you purpose and drive—it’s part of your unique selling point. Make sure that you can convey this clearly to investors: what problem are you solving? And why now? Practice your pitch with family, friends, even low level investors. Once you’ve got the kinks ironed out, you’re ready for the big leagues.

As a bonus, you’ll know you’re ready if you’ve devised a way to be profitable—even without funding. This is a great sign to investors (and yourself) because it’s a promise that you’ll succeed no matter what—raising money will only help you do it faster.

Plan Your Attack

Once you’ve built up your idea and your story, plan out your fundraising strategy.

Paul Graham famously advised founders to talk to investors in parallel. While arranging fundraising meetings may not be time-intensive, the process of fundraising is thought-intensive, pulling your attention away from your work. Fundraising all at once helps you to focus and get it done quickly, so you can get back to what matters.

Plus, once you’ve got that first term sheet, others that have been dancing around your deal will suddenly switch into high gear (happens every time).

You should also create multiple growth plans dependent on the amount of funding you receive. Run lots of scenarios within a range of funding, then present the plans that best fit each investor. Planning for multiple scenarios will show that you’re prepared to build your business, no matter how fundraising turns out.

Set your fundraising goals strategically—actually do the math. Usually, startups raise in rounds to get to their next milestone (typically 12-18 months later). Calculate monthly operation costs and multiply by 18—voila! You’ve got a reasonable fundraising goal.

It’s important to note, however, that many economists are predicting a downturn some time in the next few years. I would also consider “overraising” and planning for a day when fundraising isn’t as easy as it is now, as you may be forced to figure out how to be profitable before you’re able to raise another round.

Get Introductions

When looking for seed investors, you’ll typically deal with 1. high-net-worth individuals (angels) and 2. Venture Capital firms (VCs) that invest institutionally.

B2Bs raising a seed round often start with angel investors in order to get the money flowing, then move onto VCs. You’ll probably find that VCs are less willing to invest in the seed round. VC’s do much more due diligence before funding a company, and at the idea stage, there’s usually too little information for them to be confident making an investment. But if they do invest, expect some serious cash (around $500K-$5M).

You’ll deal with angels and VCs very differently, but they’ve got two things in common:

  • They want to invest in things that already have fundraising momentum
  • They want to make a huge splash and get a real return, not fund a lifestyle business

This is why you don’t want to start fundraising before you’re ready. If you’ve got a tiny space or a flimsy team, you’re going to make a bad impression on investors. Introductions can be hard to get (warm introductions are best—from a founder of a company they’ve funded), so don’t waste them.

Quick note on debt raising: it’s rare for B2B, but not impossible. Odds are, you’ll be equity fundraising. But you can also seek out non-dilutive capital like grants and solicitations.

Follow Promising Investors

After you’ve had an introduction, immediately set a meeting and follow your most promising leads.

If you’ve been fundraising in parallel, hopefully you’re juggling a good number of investors. This is great! You should meet with as many investors as you can, but set your sights on the investors that are most likely to close—and who would be the best partners if they did.

B2B solutions can be very sought after, so find partners who stand to gain a lot. Know your audience and research firms with similar investments. Then, listen to the investor when you meet, get him or her to talk more than you. This kind of connection makes it more likely you’ll end up with a “yes.”

There will, of course, be some No’s. Don’t take offense by this, but part on good terms. If investors spent enough time with you, they probably came close to saying yes—you may have more luck in the next round.

And don’t be fooled by the No’s in disguise. Investors may try to wait around or lead you on. If they won’t clarify next steps or give a solid commitment, they’re just not that into you.

Close the Deal

The key to landing investors is to close quickly and keep moving forward. Get money in the bank and then get back to work improving your product and traction.

When you’ve heard a verbal yes, confirm it in writing. Y Combinator calls this the “Handshake Protocol”: You and Investor verbally say yes; then within 48 hours, You and Investor confirm in writing (text or email is fine).

Once this is done, you’ll get a term sheet with specifics and sign it (a term sheet lays out the basic structure of the deal, but is non-binding). Then, after some more diligence, final docs will be created by lawyers (who will charge way too much—you’re paying, by the way). This process usually takes at least a few weeks. Once they’re truly final, you’ll sign the papers and the investors will wire the money.

B2Bs can be risky, and even a day’s delay could cause an investor to change their mind. Once you’ve got the deal, get the money—always taking definite offers over potential offers.

The First Check is the Hardest

To hit the ground running, you just need to convince one investor. After that, it becomes increasingly easy to get more.

Don’t make the process complicated, and don’t let investors complicate things either. Simplify your pitch—stick to the essentials (the problem, the product, your team, your vision). Keep negotiations, documents and valuation straightforward in the seed round. Be confident and direct, but never arrogant—and always hold yourself to the highest ethical standards.

Once you’ve closed the deal, be smart with your resources. Continue to bootstrap where you can and don’t burn through your funds.

Fundraising is not the key to success, it’s only a means to an end. Get it over with and get back to building your company.

More on How to Raise a Seed Round in B2B

13+ B2B Conferences & Events to Accelerate Your Startup’s Growth in 2019

Startup founders often have difficulty seeing the forest for the trees. They get stuck on a business problem and can’t seem to find a solution.

B2B conferences are a great way to find inspiration. Interacting with other founders and executives can help generate new ideas and uncover strategies that truly move the needle.

Sometimes, a spark is all we need.

To help founders find the best conferences for their needs, I have put together a list of the best B2B conferences in 2019:

General Conferences for B2B SaaS Founders

  • SaaStr Annual – February 5-7, 2019 / San Francisco
    Founded 5 years ago by serial entrepreneur Jason Lemkin, SaaStr Annual brings together over 12,500 SaaS executives, founders, and VCs. It’s a good place to network, strike deals, and discuss a variety of topics (SaaS business, fundraising, enterprise sales, customer success, metrics, etc). Based in Europe? SaaStr Europa brings together 2,500 B2B founders, executives, and VCs in Paris, France.
  • Unleash – March 10-12, 2019 / San Diego
    Unleash (ex-Revenue Summit) was started by SalesHacker. It focuses on sales, marketing, and the intersection between both professions. With a strong emphasis on processes, account-based marketing and sales tech, it’s a good event to go a bit deeper into B2B sales and processes.
  • Marketing Nation Summit – March 24-28, 2019 / Las Vegas
    Marketo’s conference is all about marketing in the B2B space. It’s an interesting alternative to Salesforce’s conference, and it’s particularly relevant if you’re selling to marketing executives.
  • B2B Rocks – June 6-7, 2019 / Sydney, Australia & September 12, 2019 / Paris, France
    B2B Rocks focuses more on local expertise than SaaStock or SaaStr Europa. Because of that, the events attract a bit of a different crowd. Whether you attend in Paris or Sydney, you’ll learn tactics to grow your B2B SaaS product.
  • Inbound – September 3-6, 2019 / Boston
    Each year, HubSpot’s conference attracts thousands of sales and marketing professionals. Inbound is a really good event to network and learn about marketing automation, content marketing, and account-based selling.
  • Hyper-Growth – June 10 / London, United Kingdom, September 3 / Boston & November 18, 2019 / San Francisco
    Hyper-Growth is Drift’s growing sales and customer-centricity event. In early September, you can easily attend both the Hyper-Growth and Inbound conferences.
  • Business of Software – September 16-18, 2019 / Boston
    The Business of Software (BoS) conference focuses on networking opportunities, teaching participants how to build better products, and learning how to become better entrepreneurs.
  • SaaStock – October 14–16, 2019 / Dublin, Ireland
    The original European SaaStr. It covers a lot of the similar topics (Sales, Customer Success, Growth, and Financing) with a lot of the same speakers, but it’s an excellent opportunity to get acquainted with some of the best European founders and investors.
  • Dreamforce – November 19-22, 2019 / San Francisco
    Salesforce’s annual event. Dreamforce was one of the first B2B conferences and it’s by far the largest event with nearly 200,000 participants, 3,000 sessions, and a lot of deals and money being thrown around.

B2B Conferences Around Specific Business Challenges

Many B2B companies have created conferences around their customers’ pain points. If you share these challenges, or wish to dive deeper into topics, like customer success, content marketing or inside sales, there are other really great conferences you can attend:

B2B Content Marketing

Customer Success

B2B Sales

  • AA-ISP’s Digital Sales World 2019 – May 14 / London, United Kingdom, June 13 / Dallas & September 12, 2019 / Norwood

Industry Events & B2B Conferences

Events and conferences are shortcuts to target markets. To speed up product-market validation or accelerate your startup’s growth, you can attend your customers’ industry events or visit your customers’ watering hole.

Maybe it’s the HR Technology Expo if you’re targeting HR professionals or the DIA 2019 Global Annual Meeting if you sell pharma companies.

Before attending any conference, try to understand the types of professional targeted by the event organizers. You’ll get a positive return on investment if there’s a fit between the event’s attendees and your ideal customer profile.

If there’s no fit, the event might not be worth your time.

Substitute Products: What Solution is Your B2B Product Really Replacing?

Though rarely perceived as a competitor, Microsoft Excel is almost always an actual competitor for software startups.Joshua Porter, Ex-HubSpot Director of User Experience

In large companies, the core business functions are well served by technology vendors. There’s Intuit for finance, Taleo for recruitment, Salesforce for CRM, and Microsoft for almost everything else.

But, Intuit, Taleo, Salesforce, and Microsoft didn’t start with large solutions addressing the needs of every customer. They started with a subset of what their products can do today.

As a small and scrappy startup with limited resources, you must identify where your solution fits in the market and how it works with your prospects’s technology platforms. The best beachheads come from capturing emerging processes and opportunities.

Are businesses quickly changing the way they do marketing? Are there ways to capture those new processes?

It’s good to have a vision for the end product, but early on, you won’t be able to go for the big win. Unless you’re bringing some kind of disruption to the market, you can’t position your solution as an all-in-all platform. You need to find the gap you’re going to fill.

Startups that solve real business problems always have to replace some kind of solution.

Maybe it’s a manual process, an Excel spreadsheet, or a legacy solution that never quite solved the problem completely. To find your gap, you have to understand the substitute products (your competition), and what you’re enabling (your solution’s value).

Examples of Substitute Products
Is Your Solution Competing Against Excel, Manual Work, or Other Substitute Products?

In other words, you must figure out how your solution is differentiated and whether that differentiation is valued by prospects. This, in a lot of ways, is a perception game. Often times, perceived comparables and perceived value matter more than real competitors and real value.

How to Compete Against Substitute Products

You can have the greatest product in the world, but if your prospects think your solution is just like Dropbox, you’ll have a hard time charging more than Dropbox. Your perceived comparables matter more than how different you think your product really is.

In the same way, if prospects don’t perceive your solution as valuable, it won’t matter what benefits it provides. The only value that matters is the value that prospects perceive from your product. What impact do they feel it has?

Think less about the direct competitors and more about how your solution can fit in their technology mix. For startups, substitute products and the status quo are typically more dangerous competitors than large incumbents.

Understand the technology mix, play nice with the existing solutions, find your fit and beachhead, and then expand to take over the world.