It’s about more than just money: why founders must raise the seed round themselves

Every week at White Star we receive a handful of inbound emails from bankers and advisors hawking a seed stage company. We haven’t come…

Every week at White Star we receive a handful of inbound emails from bankers and advisors hawking a seed stage company. We haven’t come close to investing in any of them.

It was in this context that I tweeted my agreement with Hunter Walk’s post last week: raising a seed round is the job of a founder and should never be outsourced to a banker. I was surprised to receive a handful of emails from founders who disagreed. Their reasons varied, but the most common theme was that fundraising takes so much time and effort that it can stall the progress of the business for months.

Having sat on both sides of the table through fundraising processes, I can sympathise with this. Fundraising always takes longer than you think, and often longer than it should. Nevertheless, I remain steadfast in my agreement with Hunter that seed stage (and probably Series A) fundraising is a job that founders must do themselves. My reasons are fourfold:

Firstly, if you’re raising a seed round, the chances are that your company has not yet achieved product market fit. That’s what you’re raising money for. You should be looking for an investor who has the skills and connections to help you get there. Many VCs have deep operational experience running companies that were once like yours and the good ones will use it (and everything else in their arsenal) to help you. Your seed round is about much more than just the money. Do you really trust a banker to assess which investor will be of most value?

Secondly, getting to know each other is a crucial part of both sides’ due diligence. By investing (and by you accepting that investment), we are entering a long term, multi-year relationship. The seed fundraising process is like our first few dates together. The initial meeting will be all smiles and laughter, but then we’ll probably have a few squabbles over valuation and terms as we get to know each other better. In doing so, we’ll learn a whole lot about each other and whether it feels like this could be a good fit for the long term.

Thirdly, bankers take a fee for their services which, at the seed stage, is often a disproportionately large percentage of your round. They are value depletive. You have bootstrapped to this point meaning that money goes further at the seed stage — it is “worth” more. I’d much rather you spend it on product development, marketing, sales, backend infrastructure or … almost anything else really!

Finally, as the founder, you wear many hats. At the early stage, one of the most important of those is Head of Sales. As an investor, if I’m to believe that you’ll go from 5 geeks in a garage to the next Spotify, you’ll need to be able to sell the hell out of your company to future employees, to customers and to all kinds of other stakeholders. Fundraising requires that same kind of hustle. In fact, hustle might be the single most important trait for a successful entrepreneur — I want to see it in you, not your banker.