David Beisel
Five years ago, as the mania around seed fundings was accelerating, Founders were very eager to announce their seed round to the world. It marks the beginning of the journey with hard work & the real business success to be accomplished ahead, but a milestone nonetheless. And seed VCs, especially as new firms were being established, were eager to encourage their portfolio startups to plant that flag in the ground publicly. It seemed like every other TechCrunch post was announcing a startups’s new seed financing round.
Fast forward and that situation has now dramatically changed. Seed stage companies just aren’t announcing their rounds anymore. Case in point, according to CrunchBase, NextView has made only two new seed investments this year in 2018… the actual number is: eleven.
What’s going on?
One aspect is demand-side: when the number of seed financings peaked in 2014–2015 timeframe, a new seed round stopped becoming “news,” and so it became less interesting for the press to actually report on these events.
However, most of this funding announcement waning effect is supply-side related. With the atomization of seed and an increasing number of rounds prior to Series A (pre-seed, seed, super-seed, etc.), there often isn’t one seminal round to announce. More importantly, with the proliferation of seed capital and seed-stage startups, entrepreneurs perceived a round to be a double-edged validation: one which cemented your standing, but one which could also attract other capital to competitors.
The last thing you want to do is raise your hand to attract others into your space. So on the endless list of things to do for a startup, announcing the round dropped slowly down the list. Also, it takes a bit of work, because if you’re going to do it, you’re going to do it right. So at least anecdotally my perception is that often not announcing a round isn’t a conscious decision of “we don’t want to announce,” but rather hitting the snooze button indefinitely on it.
But I think that endless snooze cycle should stop. It’s time to wake up and declare your seed stage startup to the world. Here’s why.
1. Recruiting, recruiting, recruiting
It’s a jungle out there. Especially in the Bay Area, but in all major tech hubs, it’s extremely challenging to recruit new employees onto the team. You can of course share privately that you’ve raised a round, but it’s a different story than a prospective employee (and their friends & family who she is going to brag to) can easily find it with a web search. Seeing on the screen just feels more “real” to many prospective employees, even if it shouldn’t. Perception is reality in the game of recruiting.
2. Inbound partner
There’s a lot of inbound when announcing a new round. Unfortunately including service providers who drop in like vultures. But in my experience, it rarely fails that press coverage attracts the attention of a potential customer or possible new partner. Typically, one that is orthogonal to the Founders’ network that wouldn’t have surfaced otherwise. True opportunities are just that, opportunistic, so why forgo that chance for a game-changer early in a company’s life?
3. Always be fundraising
With the atomization of seed and multiple seed rounds the norm, I believe that there is a new playbook for raising a Series A. It’s not about teeing yourself up for one big fundraising process six months prior to cash-out, but rather often the optimal path is an running ongoing campaign with prospective VCs who demonstrate true interest. And one of the best first steps to attracting downstream partners at venture firms is to put yourself on the map. Announcing the round will (hopefully) generate a round of attention and land you in CrunchBase, CBInsights, and rest of the industry catalog.
Of course, the best way to execute isn’t a funding announcement alone. Instead, following PR 101 to get the most bang — and hopefully media coverage — by tying it to a strategic event: a product launch, and partnership announcement, or some other key milestone which the industry landscape should care about.
But what about the previously mentioned competitive risk?
Yes, it is real, I’ll admit. But it typically isn’t huge and is outweighed by the risk of being too quiet.
There are legitimate reasons for a startup to be in stealth mode. For example, if a company is creating a new category, yet has reasonably low barriers and is execution-driven, then a conscious decision to prioritize a stealthy existence (at least on the funding front) can make a lot of sense. But for the most part, if you’re generally public about what you’re doing, you’re not in stealth mode, you’re in outbound mode. And anything in-between is only poorly executed outbound mode.
While later-stage startups that may attract unwanted competitive attention by showing that their model is working with later rounds of financing, I believe that at the seed stage few really care that you raised $1.5M. The biggest challenge for most seed stage startups isn’t that the world is going to be paying too much attention to it, it’s that nobody is.
So for that reason, for the typical seed stage startup, I believe announcing that first funding milestone should be celebrated and valued. It can help add to the business in terms of attracting key constituents into the company — from future team-mates, to business partners, and to potential investors. Share with the world that there are others out there who also see the value in what you’re doing, it’ll make a difference.