Seed Funding: How to Raise Venture Capital - Startups 101

In 2024, for over $83 billion were invested into start ups as we go into 2025. There's over trillion waiting to be invested across private equity and venture capital for startup companies. Here's a big question, though.

How do you actually raise money for your startup? Because the reality is, even with all of this money, even with all of those announcements, only 1% of startups are successful in raising a seed round. this episode, I'm going to walk you through the three principles that you absolutely need to know on how to win in the fundraising game.

And it's my true hope, my true intention that you're able to raise money, you're able to drive growth, you're able to reach that next stage so that you can create the company of your dreams. Intro Wants Everybody. Welcome to Unstoppable.

I'm TK, and on this channel I help SAS founders like you grow your size business faster with an unstoppable strategy. So if you knew. Be sure to hit the subscribe button and that bell icon you'll get notified.

Every single time I drop an episode with TC Energy. Now, if you're already part of this community, you're part of my SAS. Go to market coaching programs, my people.

Welcome back. It's really awesome to see you over here. When I was raising money for Tout at my last company, I had Zero Network.

I was a solo founder, so I couldn't apply to Y Combinator. And I was living in New York, Not even San Francisco. But I found a way to raise money I was able to raise from angel investors like Esther Dyson and Scott Bannister and Jason Calacanis.

I was able to raise from seed funds like 500 startups and Founder Collective. And my series A was backed by Jackson Square Ventures, and my Series B was led by Andreessen Horowitz. I learned the hard way exactly how fundraising works.

So in this episode, I'm going to walk you through the three principles you absolutely need to know about the startup fundraising process. And if you watch till the end, I'm going to teach you some bonus principles that I've learned along the way and how you can skip rounds and manage for dilution. So if you're excited, dig in and smash it like button for the YouTube algorithm and let's get right into it.

Okay, So first let's lay out the chessboard. before I talk about the different types of ways to raise money and to tap into venture capital, let's talk about the lifecycle of your company. essentially start with an idea.

Once you have an idea, you then get to initial revenues and then you get to initial scalable revenues and then you get to repeatable revenues. These are the key inflection points your business goes through and eventually you IPO. Now if you are not building a company that is designed to IPO, meaning it reaches at least 100 million in annual recurring revenue and can exit for billions of dollars then venture capital won't fund.

So you have to be chasing ideas that are this big and are in it for the long run. Now, the venture capital system, the venture capital ecosystem is designed to support you at each of these phases. So let's first talk about principle number one.

Let's talk about the key stages of capital that exist for you. The first stage that exists is the Pre-Seed phase. This is before you have revenues and you have only an idea once you have a pre-seed round, you're then able to deploy those funds to develop your idea to actually get to product market fit and get to those initial revenues.

So that's when a seed round comes in. The seed round is designed to help you get to scalable revenues where you can actually invest in people and systems so that you can show like, hey, more people want this and we can do this over and over. Once you've gotten to scalable revenues, then you're able to raise a series, a investment, a series, a investment is designed to help pour more gas into what's already working and start to really scale those machines.

And as you start to scale those machines, you get even more revenues and A series B comes in. And typically a series B investment is designed to show repeatability that shows that, hey, we can scale this. We have some crazy machines that are working, but we can do it over and over and over and over.

And if we can really professionalize the whole thing. And beyond that, there series C, series D, series F, and eventually you exit or IPO and that's how this whole system is supported. now that you know the key stages that exist, let's talk about what you actually need to raise at each of these stages.

This is where a lot of founders get wrong. This is where they get lost and they don't understand what venture capitalists are really looking for. So principle number two is no what is needed.

Let's take the easy one first. There are a lot of founders out there who have an idea and they go out there saying, Hey, I have a brilliant idea. It's going to be revolutionary and you should fund me.

But the thing is, an idea is actually not enough to raise a pre-seed round. There's one thing that you actually really need, and it's called pedigree. This is where a lot of founders go wrong because honestly, they look at TechCrunch and they see so-and-so with no revenues, and an idea raised $50 million and it's a pre-seed round or a seed round, even though the reality is pre-seed rounds are really driven by pedigree.

What that means is it depends on the team. It's not about the idea, it's more about the people. And investors typically look at prior success.

Did you make money for investors in the past? Did you go to the right school or did you work at the right company? So if you went to Stanford and you were the second employee at Stripe, then you will be funded with a pre-seed round.

But if you haven't had any of those things, no one will fund you with a pre-seed round. So take me for example. When I first started getting into this game, I didn't really have any pedigree.

I didn't come from a successful startup and I didn't really go to a company and I wasn't the first employee. wear, I can show like, Hey, I learned all this stuff and you should invest in me. I had some items that were pedigree but not enough for pre-revenue.

And so I basically didn't raise a pre-seed round. I jumped to the seed round after I got two initial revenues. So when you are thinking about your idea, you really want to figure out, do you want to spend the time going after pre-seed rounds knowing whether you have the pedigree or not?

You just have to be honest with yourself. If you have the pedigree, then own it and use it and raise around. But if you don't have the pedigree, don't waste your time.

Get to building. a real product that starts generating revenues. And then you can start to look at investors at the seed round.

Okay, Now let's talk about seed. When you're raising a seed round, there's two things that investors look at. The first is a total addressable market.

This is something that people don't quite realize. Investors only want opportunities that can IPO or has a path to IPO, which means they only want to fund ideas that are going after really large markets. The simple reason behind this is the math behind venture capital.

The reality is when an investor raises money, let's just say they raise $100 million seed fund. They promise their LPs a return of three X to five X, meaning if they raised 100 million to our fund, they want to return 300 million to 500 million. Once it's all done in a ten year span.

reality is 98% of their investments are going to fail and one of them are going to succeed. That's a venture math. So because of that, every single one of the investments that they invest in has to go after a really large idea that has the likelihood of returning the fund.

So even before they think about what numbers you have, they're really trying to figure out is this market going to be big enough to have a venture scale exit The second thing they look at is traction. Traction could be in the form of users or it could be in the form of revenue. But traction is very rarely in the form of waitlists.

A lot of times founders will come and say, Look, we have a waitlist of 50,000 people and as soon as we raise some money, we're going to build a product then they're going to love it and they're going to buy it. But the reality is it's pretty easy to get a waitlist going. It's a lot harder to get people to use a product and then pay for it or get daily active users if you're on a freemium model.

So investors really want to see traction in form of active users using the product and referring to more people or actual revenues where they're paying for it. Then you get to the series, a stage at the series, a stage you're looking at TAM again, and they're verifying that the seed investors got it right. But really, they're looking at traction and they're looking at a scalable GTM.

They really want to see that you know what to do with a $10 million series a round. You would know how to spend that money to actually get more customers. And the way they know that is they'll ask you what's your go to market strategy?

How are you generating customers, How are you generating leads? And based on that, they're going to do a judgment call on is the market big enough and is this company ready to take on $10 million of capital and deploy it into their go to market machine so that they can go capture this opportunity and win against the competition? the last piece that series eight investors also look at is competition.

If there is already a well-funded competitor that's venture backed in the space, they'll look twice. They'll try to figure out is this the company we want to bet on or do we want to wait till the series B and bet on the other company that's already ahead of the curve? And this is something that you'll want to think about as well.

And finally, for Series B investors, it purely becomes a financial process At this point. They're looking at your financial statements and they're looking at your forecasts and they're looking to figure out, is the TAM still true? Are the competitive dynamics there where they can take the full market and do they know how to forecast and can they show us how they can deploy 30, $6,000 million of capital to actually go win this market and drive towards an IPO?

These are the critical factors that investors look for to understand if they're going to invest in you. So before you ever approach investors, you want to make sure that for yourself you're doing the due diligence and figuring out, do I have the right TAM where this is a venture scale company, Do I have the right idea and do I have the right amount of traction? One of the key themes that you're going to see pretty much from the seed round onwards is traction.

Traction is the key thing that investors look for. lot of times founders think that investors exist to fund your dreams as a founder and honestly, as a founder. I thought the same thing.

I want to be an entrepreneur. It's inspiring. Investors should want to back me.

While that's true for a certain type of investor and that's angel investors, it's not true for institutional investors. So you could go after angel investors, which are essentially normal people that are high net worth individuals funding their own money. They will back your dreams and they may get in early, super early, even if you don't have the pedigree because they love you or you look like them or you remind them of someone.

But for the rest of these investors, the professional investors who have raised funds, they have what we call LPS limited partners to answer to. That's where the money really comes from. That's where the fund is built on.

And so they don't fund dreams. They're funding traction. And the biggest thing you want to understand for traction is you want to have a proper go to market machine.

Now, before I go to the third principle, limit passive for a second are you can see the power of this. Are you starting to see the power of thinking about this fund raising process from the investors mind versus just the founders mind? At the end of the day, fundraising is a game, and in order to win at any game, you have to understand the rules and you have to understand all the players and you have to understand how the game works.

And at the end of the day, depending on the stage you're in, the game has certain rules of entry. If you're SA see the power on this, if you start to see the power of this, can I just get a yes in the comments below and also smash a like button for the YouTube algorithm. He just loves it when you do that.

Also, if you're in the stage where you're trying to figure out, okay, what's my TAM? Why should I attraction be? What's my go to market strategy?

I have a five point SAS growth strategy guy. It's completely free. I'll tell you more about it at the end of this episode.

You don't have to go anywhere right now, but make sure you grab a copy of that. Also put the link in the description. has detailed videos on how to craft your pitch deck.

How to get into the mind of the investor, how to pitch them, and also how to build a scalable go to market machine. So you'll definitely need it in your journey. All right.

Also, smash a like button for the YouTube algorithm if you're getting value. Just loves it when you do that. Now that you understand the chessboard, let's talk about the one thing you really need to nail for each of these stages.

So this is going to be the one thing you need to focus on If you are doing a pre-seed round, the one thing that you really need to nail in your pitch deck is your team, the team slide and the story of where you guys come from and why you are really on the top 1% of the people that are trying to build companies and why you're uniquely equipped to build on this idea and bring it to success is the biggest thing you want to be focusing on for your pitch deck. That's the one thing to focus on for the Pre-Seed. If you're raising a seed round, then the one thing that you need to be focusing on is your TAM slide.

This is a slide in your pitch deck where you really explain the market opportunity. Remember, at this stage there's some numbers on traction and they'll want to understand your go to market strategy. want to look at what kind of revenues you already have.

But really they're trying to evaluate whether this is a big enough market to go return their fund. That's the biggest thing you want to focus on when you are at the series, a stage you really want to nail the go to market slide. This is where you've kind of been validated on the TAM and they'll revisit it.

But they're really looking at are you proving out the thesis? Are you actually showing you can in a repeated way generate new customers and therefore if they give you 5 million, 10 million, $15 million in a series A, you know how to deploy it into the machine and you know how to scale the machine you can get even more customers and get to a series B. And lastly, for the Series B, at this point, you probably will have a very sophisticated deck.

It's not really just one thing, but the biggest thing they're looking for is repeatability. They really want to understand if you can keep doing what you're doing over and over and over and scale it in massive ways. And one of the big things that they're looking at is are you able to go the distance and take it to IPO Now, I promised you a bonus principle.

If you're still watching, you probably getting value. So make sure you smash that like button. Now, the bonus principle, this is something that's come as of late.

This didn't exist when I was raising money or building companies. But it's very true today because you can build very lean companies. One of the things that I've seen is founders are designing their fundraising to skip around.

The reality is every single time you raise money, you give up anywhere from 15 to 20% of the company. So if you do a pre-seed round, you might give away 20% of the company before you even know what you're building. If you do a seed round, you'll definitely give away 15 to 20% and that can stack up, which means that you'll get diluted, your ownership will get diluted in the company.

So I've seen two plays here. One play that I've seen is founders skip the entire pre-seed and stage. fact, they just bootstrap it so they'll just go ramen and they'll hustle.

They'll put in their own money. They won't raise a pre-seed round, they won't raise a seed round. They'll wait till the series a stage.

They'll get it to a scale, will go to market machine, they'll get it to profitability and then they'll raise a series A that way they'll skip anywhere from 10 to 30% of dilution depending on how you structure your precede and seed rounds. And you get a lot more optionality on how you actually raise your series. So you can definitely bootstrap in the beginning and keep it super lean and wait to raise around.

Once you've really proven product market fit a scalable go to market machine and they'll save you a ton of dilution. And you also just get a lot more control and you're more likely to get a Tier one VC interested at that point as well. The other thing that we've seen is founders will raise a very, very small initial round and then never raise again.

So what they'll do is they'll raise I'm going to use a different color over here. They'll raise like five hurricane and they'll say, this is the last amount of money that we're going to raise. This allows us to quit our jobs and we're going to never raise again.

And we're going to build a really big company. And you might say, okay, that's like impossible. How can you possibly do that?

You can look at the history of Zapier. Zapier is a great example where they did a very small round and they've been profitable ever since, and they're north of $100 million company and will probably IPO at some point. It's an incredible company and so both of these cases optimize for founder dilution meaning it'll make sure you retain more of your company and also gives you more control so you could bootstrap in the beginning and really invest in a scalable go to market machine.

So you don't have to raise in the beginning and get to profitability and then raise a big round or you can raise a little bit of money and again build a scalable go to market machine and never raise again. Either way, you control your own destiny. You have a lot more optionality.

This didn't quite exist when I was a founder and raising money for our Tout app, but it's a very true thing now. I'm doing it with two companies right now, and I have lots of clients and I go to market program. They're doing this same play where they're skipping around in different ways.

All right. So now you know how the venture capital game works and the key things you need to know. Let's recap.

Number one, understand the key stages that exist for you to serve you as a founder depending on where you are with your business. So stage might be pre-seed and then seed and then series and series B. Here's the key thing that's needed when you are raising each of these stages.

When you're in the pre-seed stage, they're really looking at a team and your pedigree. When you're at the seed stage, they're looking at the TAM, the total addressable market and the traction that you have, and then the team and then series, they're looking at the TAM, the traction and also whether you have a scalable go to market machine. And for Series B, they're looking at your financials and they're looking at your forecast and they're looking to see if you can repeat what you have been doing.

The one thing you need to focus on on the Pre-Seed stage, especially for your pitch deck, is your team slide and the story and explaining your pedigree, the one thing you need to focus on on your seed round is the TAM slide, the total addressable market slide. The one thing you need to focus on on your series deck is the go to market slide. The one thing to focus on in series B will probably be Slide deck is your repeatability around the business and the bonus thing you want to remember is some people are just skipping rounds.

They're bootstrapping to get to a series A or they're raising a small round and never raising again either way to building a scalable go to market machine. So they control their own destiny. So now you know how the venture capital game works.

What you might not know is, okay, how do I build out my pitch deck? What slide should be in there, what should go in my team slide or my total addressable market slide or my go to market slide, or how do I build a scalable go to market machine so I can skip around? This is why I created my five point SAS growth strategy guide.

It's completely free and it has a number of in-depth resources on how to think about fundraising and building a scalable go to market machine. So to grab your copy, just go to get unstoppable dot com slash strategy, get unstoppable dot com slash strategy. If you got value from this video, please smash it like button for the YouTube algorithm.

He just loves it when you do that. Also you have a fellow founder. If you have a future founder, friend that you want to start a company with, please share this video with them.

If part of a Slack group or a WhatsApp group with other SAS founders, please share this video over there. We want to help as many SAS founders as possible during this golden age of software because it's going to be an incredible time on building companies. And also if you got value from this, please smash the like button for the YouTube algorithm.

I drop an episode like this every single Sunday with actionable strategies and tactics from the trenches on how to grow your SAS business faster. So be sure to hit the subscribe button and that bell icon you'll get notified every single time I drop it. Episode.

And lastly, remember, everyone needs a strategy for their life and their business. When you are with us, yours is going to be unstoppable. I'm T.

K. , and I'll see you. The next episode are inside the five point Sasko Strategy Guide.

Take care, everybody. That's not helpful either. Alexa, turn off the office like, if that helps.

All right. The sun just set here in Dallas, so hopefully this lighting still works for you. Also, just as a side note, I had the flu and I'm delayed in filming and I'm just trying to keep up with everything.

So the sun did set while I was filming this, so if it looks slightly different, my apologies. I hope you still got value from this video and in hopefully you can make all of this work and work your magic. Let me know if you have any issues at all.

Just text me. Happy to helping with anything. And if we need to re film this, just let me know.

I'm happy to do that too. Thanks man. Take care, everybody.