How much traction do you need to raise a seed round?

“In my view, like, that is the way that we should be evaluating it, right? It's like the risk stage alignment. And so that's how we think pre-seed should be. Defined, you're taking risk up until the point that there is like early signs of product pull. So that might look like revenue, that might look like accelerating customer adoption, that might look like accelerating LOIs. So it's those, the kind of verify viable data from idea through to traction that actually you can start to fund at the seed stage, which I think is a nuanced distinction. I will say as well, There is loads of noise at this end of the market because there are some interesting dynamics that I think we are watching. For example, one is for the bigger funds, right? Folks that are investing out of a fund, say, of more than $500 million, and especially repeat players, like what you see them do is what I would term as a seed preempt. So they're essentially saying, we are willing to underwrite that there's not going to be really a risk that you're going to get to those early signs of product pull, right? We think that we back you to execute through those signs of early product pull. And ultimately what we are funding is you showing that you can build product-market fit here. And on that basis, we'll give you a much bigger round with a much higher valuation. And so you're seeing those rounds being done by the kind of Airtrees, Blackbirds into repeat. Players, right? Folks where there isn't necessarily as much execution risk and they are being, they're kind of round sizes are anywhere between like 2, sometimes all the way up to $5 million and valuations are being done anywhere from $18 to I've seen kind of $27 million USD. And so those are big rounds, right? But essentially what they're saying, they're kind of bundling 2 rounds together because they're saying we don't think that there is a risk that you are not going to be able to make it through that hurdle of early signs of product market pull., but they are titling them pre-seed per PitchBook's, um, I love you guys PitchBook, but like, this is not a good definition. Um, the definition of like, well, they called it pre-seed, so we too shall call it pre-seed, really like muddies the water because that data then gets pulled into the pre-seed valuation averages and it's actually lik”

“So when I was at 500 Global previously, I did back companies in noisy spaces that had a fair bit of traction. So as, as part of the accelerator, we were looking for companies with traction and we were also asking for, you know, accelerator valuations. So that was a, I think a hard thing to convince people of, and the kinds of companies we could get access to were the ones in competitive spaces where there were not many VCs who wanted to, to back that. And I think my lesson learned there is it's not actually terrible. Um, I mean, even within Hustle Fund, we have some companies in competitive spaces, either because it was competitive and we didn't realize it, or the competition came later, which is happening more and more with everybody these days. But— Um, where the founders win is when they are scrappy and don't need to raise a lot of money. And you may wonder, well, how is that possible? Because the customer acquisition costs go up and you can't raise any money. So how does that work? Well, I think there are just some founders who are really good at kind of like hacking the, the distribution, and also I guess are willing to stay lean and, and, and grow a little bit less quickly. But like once you're in it for a while, then at some point it kind kind of kicks in where you are off to the races. And so get to— getting to profitability somehow in some shape or form allows you to kind of extend your runway. I don't want to say forever, but almost forever. So, so those companies— I mean, I've seen some of those companies win as well. Um, but not everyone wants to be that lean, right?”

“Right. Yeah, absolutely. Especially at the pre-seed round. I often suggest to founders when they come and say that they're planning on raising a priced round for their pre-seed, especially if it's kind anywhere between $500,000 to $750,000. The rule of thumb is you're spending like somewhere between $50,000 and $80,000 on legals for a price round. And so you don't want to be raising $500,000 and then passing $80,000 of that back to your lawyers. Like, that does not make sense.”