DocSend has become one of the most popular tools for sharing venture fundraise decks, not only because of the control it offers, but also because of the analytics it can provide founders on how VCs read decks and where they might get stuck as they are perusing from slide to slide.
The company has been generous sharing its data with us on what times are best to fundraise and how to structure a slide deck for best performance. Now the company has released a new report on the state of pre-seed funding, and it is chock full of interesting facts and figures.
When is the right time to pitch VCs for funding?
You should read the deck, but I would point out three interesting patterns that arise from the company’s data.
First, there is a really fascinating pattern comparing the number of founders at a startup with the amount of money the startup eventually fundraises and how many meetings it takes to close a pre-seed round. I created a chart from DocSend’s data here:
What’s interesting is that there is (almost) a straight linear decrease in the number of meetings required to close a pre-seed round as the number of founders increases. This makes sense to some degree: given how early most of these rounds are, one of the best ways to de-risk an investment is to simply add more people early on. Theoretically, five people can get more work done than a “team” of just one person.
But despite what appears to be an easier time fundraising, the actual dollars coming in doesn’t reflect the potentially de-risked nature of having more co-founders. In fact, three founders is the peak for dollars invested into a company — at $511,522 — and it swiftly decreases as teams add one or two more co-founders.
I have hypotheses on why that might be, although without more data, it’s hard to answer them. But if you want to optimize your pre-seed fundraise and you are looking for a magic number, it definitely seems that three co-founders is what pre-seed VCs today are looking for.
A second interesting nugget in this report is what slides tend to be included in successful pre-seed fundraise decks. The typical ones are listed and are fairly uniformly included, such as Company Purpose, Problem, Solution, Market Size, Product, Business Model, and Team.
But “Why Now” slides are only included in 53% of successful pre-seed fundraise decks in DocSend’s dataset, and that seems absolutely nuts to me. With the number of startups plying their trade in all kinds of verticals, if something hasn’t been built yet, there usually is at least some reason why there isn’t an incumbent startup that has been successful. That’s usually what gets answered in a Why Now slide, but I guess a lot of pre-seed investors just sort of take it at face value that new startups are going to cut through the market no matter what has happened before.
What’s even crazier though is that only two-thirds of decks included a Fundraising Ask. This used to be Fundraising 101: you always included an “ask” at the end of the deck to make sure that investors knew what you were looking for in terms of capital requirements. But with the rise of complexity around seed, I can understand that the Ask slide is just becoming more and more complicated to include, particularly at pre-seed, and so founders are dropping it.
6 strategic stages of seed fundraising in 2020
The third and final data point I thought was fascinating was around the number of investors contacted as part of a fundraising process. DocSend’s report has a handy graph, but my takeaway is that while some folks manage to fundraise with very little outreach to investors, a whole other group needs to contact upwards of 100, 150 or even 200 investors in order to raise their pre-seed.
I have repeated a mantra that pitching 100 investors per round is not uncommon for many startups, and that seems to be borne out here in the data. Yes, 100+ contacts is a large number, but ultimately, some fundraises are just tough, and the more people that potentially get a look at your company, the more likelier you are to succeed.
DocSend CEO Russ Heddleston told me that his own personal takeaway is that the quality bar has just gone up for many early-stage startups. “We used to say you could get funding with an MVPP (minimum viable PowerPoint), but VCs are spending a significant amount of time looking at the product pages of successful decks, and really expect a level of product readiness that we didn’t see five years ago,” he said.
There’s a lot more in the report, but those are some highlights. Definitely check out all of DocSend’s other data as well.
New AngelList dataset sheds light on the signaling risks of seed-stage investments
FAQs
pre-seed investors are typically angel investors, friends and family, or accelerators. Pre-seed funding can range from a few thousand dollars to a few million, with the average deal size falling somewhere around $500,000.
What is a typical pre seed investment size? ›
Founders tend to get higher investments through seed funding than pre-seed funding, with pre-seed funding generating around $50,000 to $250,000 while seed funding may raise upwards of $2M.
How much equity should founders have at seed? ›
The general rule of thumb for angel/seed stage rounds is that founders should sell between 10% and 20% of the equity in the company. These parameters weren't plucked out of thin air, they're based on what an early equity investor is looking for in terms of return.
How to calculate pre-seed? ›
One popular method is to use a multiple of revenue. This means that you take your annual revenue and multiply it by a certain number. For example, if your annual revenue is $1 million and you use a multiple of 3x, then your company's pre-seed valuation would be $3 million.
What is a good pre-seed amount? ›
Your goal here should be to take as little money as possible that will still let you prove out your idea. We often see pre-seed rounds being between $500,000 - $1 million, with the valuation around the $5 million mark. This means you are still selling 10-20% of your startup.
What is a typical Preseed valuation? ›
Pre-seed startups valuation. To better understand pre-seed startup valuation, let us take a general look at pre-seed startups and their valuation. The term pre-seed refers to the earliest round of funding a startup receives. The amount of funding varies, and it usually ranges from $100,000 to $1,000,000.
How much equity should I give pre seed investors? ›
Your pre-seed money will hence be used to get to the next startup funding round. Investors in the pre-seed round are typically friends and family or business angels, with investments ranging from $50,000 – $200,000 for a 5% – 10% equity stake.
What is a good amount of seed funding? ›
How much is seed funding? Typically, seed funding rounds are relatively small compared to later priced rounds and can vary greatly from about $500k to $5 million. The median fundraising amount for seed rounds in early 2023 was $3.1 million, according to Carta's data.
How much should pre-seed founders pay themselves? ›
Pre-seed/Seed stage founders typically draw a salary of $40,000 - $70,000, Series A founders around $75,000 - $125,000, and by Series B and beyond, salaries often exceed $125,000.
How much should founders own? ›
Investors own 20-30% of startup shares, while the founders and co-founders should have more than 60%. You can also leave around 5% of available shares but allocate 10% to employees.
An investor will generally require stock in your firm to stay with you until you sell it. However, you may not want to give up a portion of your business. Many advisors suggest that those just starting out should consider giving somewhere between 10 and 20% of ownership.
How does pre-seed funding work? ›
Pre-Seed Funding
The earliest stage of funding a new company comes so early in the process that it is not generally included in the funding rounds. Known as "pre-seed" funding, this stage typically refers to when a company's founders get their operations off the ground.
How to justify startup valuation? ›
A startup valuation may account for factors like your team's expertise, product, assets, business model, total addressable market, competitor performance, market opportunity, goodwill, and more. If you have actual revenues, you're able to use concrete economic numbers as a starting point.
What is pre-seed vs. seed? ›
Pre-seed capital, in a nutshell, is meant to fund early product development and prove a need in your niche market for your product. Companies are ready for seed funding after gaining traction and proving market needs.
How much should I ask for Preseed? ›
Funds raised during the pre-seed round average between $100k-$1 million (depending on whom you ask, this could vary wildly). Because valuing a business at this stage is difficult, founders often use SAFE notes.
What is the average amount of seed money? ›
The average seed round is between $1 million and $2 million. The size of a seed round depends on the startup's stage of development, the amount of funding the startup needs, and the investors' risk tolerance. Seed rounds typically have a shorter timeline than other rounds of funding, such as Series A or B rounds.
What is the average dilution for pre-seed rounds? ›
If you can manage to give up as little as 10% of your company in your seed round, that is wonderful, but most rounds will require up to 20% dilution and you should try to avoid more than 25%.
