Our team has had the benefit of observing a large number of early-stage founders, as they embarked on their journeys to build access with investors. In the below post, we have documented our observations around the most common access points.

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Building Founder Networks

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In the earliest stages of company-building, founders generally find it a lot easier to establish relationships with other VC-backed founders, and then use these relationships to get introductions to investors. We have observed founder networks to play a central role in successful raise processes, irrespective of the stage.

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When building a strong network of other VC-backed founders, users have reported the most success with the following strategies:‍

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1. Mining LinkedIn & Gmail Connections: As a starting point, founders need to first mine LinkedIn & Gmail connections to identify VC-backed founders that they already know. By integrating Gmail and LinkedIn contacts within Metal, a vast majority of Metal's customers report identifying useful connections that were previously not on their radar. Additionally, customers also report being able to research the networks of their connections in ways that enable them to identify which introductions to request from a given person.
2. ‍Introductions via Existing Investors: Founders that have raised from accelerators and/or other investors with large portfolios are able to get introductions to specific founders via their investor network. In general, investors tend to be particularly open to brokering introductions across the portfolio.
3. ‍Introductions via Product Usage: In recent months, an interesting new avenue has emerged whereby users first identify specific founders that have previously raised from a given investor. Subsequently, they shortlist ones that are in the early stages of building SaaS products, and then contribute to their journeys through product usage and feedback. When done thoughtfully and authentically, this has proven to be a particularly useful channel.
4. Cold Emails: In most scenarios, cold emails tend to have an extremely low response rate, and are typically not a particularly productive use of time. In a few scenarios, however, we have observed cold emails to work surprisingly well -- this typically happens in instances whereby the recipient and the sender have a meaningful common ground. This could range from raising capital in a specific country (I.e. founders in Indonesia) to raising late-stage rounds in a unique sector (I.e. founders that have raised $10m+ for hardware companies).‍

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When building access via founder networks, users are able to get a useful perspective on the investing personalities of various investors directly from founders that have raised from them. Based on feedback from our customer base, we have observed this insight to be even more useful than the introduction itself.

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Leveraging Existing Investors

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Your existing investors are heavily incentivised to help you raise your next round. The ability of founders to mobilise the support of existing investors is a learned skill. The below guidelines can serve as a useful starting point:

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1. Build Trust: Your relationship with your existing investors starts from the very first meeting (before they even decided to invest). As is the case with most relationships, your ability to build value will depend on the relationship history. Frequent and detailed investor updates along with quarterly calls are a good starting point.‍
2. Use Network Insights to Prioritise Asks: During a raise process, before making specific asks, you want to conduct extensive research to identify the 3-5 most valuable introductions from a given investor. The total number of introductions that you can request depends on the nature of the investor and your relationship with them. It is, however, a finite number, and you want to ensure that you are ruthlessly prioritising your asks.

For most founders, their existing or current cap table is one of the most critical assets in a raise process. Founders that successfully close rounds tend to be most effective in getting the most value of our their existing cap table.

Pre-Seed investors routinely invest in companies in the pre-product and pre-revenue stages. With this write-up, we look to bring clarity and precision around what investors look for at this stage.

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Implications of Pre-Seed Valuations

At Pre-Seed, investors are often investing at a median valuation of $4m. Given the low entry price, Pre-Seed investors end up doing well as long as the Company is able to develop a reasonably strong product.

Put differently, the factors associated with whether or not the Company grows to a multi-billion dollar enterprise may not be super relevant for Pre-Seed investors. If the Company builds a strong product, and even if the Company is not wildly successful, Pre-Seed investors will still do fairly well.

Investor X invests $500K in the Pre-Seed round of Company Y at a 4m post-money valuation. Let's assume that the Company succeeds in building a reasonably strong product, but is ultimately unable to scale. The Company ends up selling for $18m (without raising subsequent venture rounds). Pre-Seed investors end up realising a 4.5x return on the original investment.

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Basis for Pre-Seed Investments

While there are broad variations in how Pre-Seed investors look at companies, a common theme is a clear focus on the founder's ability to build a strong product. How, then, do investors assess whether or not a founding team will succeed at building a strong product?

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At Pre-Seed, the main bet is on the founder's ability to build a great product. Investor discussions are, therefore, focused heavily on developing an assessment on whether or not a given founder will be able to build a great product.

Of all venture stages, Series A shows the steepest drop-off point. Specifically, of all companies that raised Seed rounds in the five-year period from 2015 to 2020, only 45% successfully raised Series A.

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The most common cause of drop-off is simply company performance. Most companies are unable to achieve the growth metrics that are typically required for Series A.

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For companies that hit exciting performance milestones, a sizeable drop-off stems from an inability to work capital markets. In Robotics or Consumer, for instance, raising capital has historically been much harder than for B2B SaaS or Fintech. Relative to the Seed landscape, we believe Series A is distinct in the following ways.

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In how founders manage their financing strategy, Series A rounds generally require a lot more sophistication than do seed rounds. From targeting to process, and from narrative to collateral, the general skill set required at Series A is fundamentally different from prior rounds.