Written by Mark Schroeder
As an early stage venture capitalist interested in SaaS startups, I often get asked this question: “What is the minimum requirement to secure project funding prior to incorporation?”
Lately, we’ve seen investors move earlier – investing in startups is often nothing more than an idea and a mantra. Growth stage investing is collapsing before our eyes, and it is pushing more and more venture capital towards early stage startups.
This migration was beneficial to the founders, but it also created a huge amount of foam, competition, and downright ridiculous ratings.
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So, if you’re a founder looking to launch a startup in these favorable dynamics, you might be interested to know what pre/initial stage venture capital considers the minimum required to write a check.
The first and most important thing that venture capital value is the founder. The founders must have a unique perspective on a niche area of the technology ecosystem. This can represent a wide range of ideas, industries, etc., but it must be unique, demonstrate clear value, and have an actionable vision. Even if your company is just an idea and a slogan, the vision should be something straightforward.
Founders must be able to share this vision in a way that is easy to follow, makes sense, and has a clear path to expand into a true value-adding company. Even if this roadmap spans many years, founders should be able to explain where they are now, and what they need to get from point A to point B and eventually to points C to Z.
This roadmap should include anticipated obstacles, points of resistance, and expectations for growth and impact. For technical founders, this might be a little easier because the product roadmap is easier to define and build.
After assessing and believing in this vision, venture capitalists will want to take a look at the founder’s background. Previous startup experience is very useful for obvious reasons, and network validation is a close second – especially for first-time founders. I’ve found that founders with very strong networks have proven people who can vouch for their ability to execute. For first-time founders, this is a must.
Even after selling the investment capital based on your vision, they will want to assess your ability to implement. It is essential to have people who have proven themselves able to do this in your corner. If a VC sees someone they know who can build a company that sings your praises and believes you can operate at their level, they will invest with confidence. Quantitative metrics, industry expertise and experience can only convince a venture capitalist so far; They rely heavily on the people they trust to indicate which founders have the right things and which ones they don’t.
All of this can be guessed at the most important importance that quality founders need to secure early stage funding: storytelling. Before there is a product and a sales team, there has to be a story that people can stick around for. Oftentimes, venture capitalists evaluate the founder’s storytelling through the lens of the client, other investors, employees, and advisors. Can this founder convince all of these stakeholders that their vision is strong and that they can deliver on the promises they make?
This storytelling isn’t just about the product, it’s about integrating the founder’s personal life experience into the aspirational vision and ultimately connecting it fully to the product roadmap. Share that compelling vision and sprinkle a little network validation on top, and you’ll get a recipe for higher early stage project funding.
Mark Schroeder is the managing partner and co-founder of MGV, focused on working with world-class technology entrepreneurs and creating the legacy of MGV. Prior to co-founding MGV, Schroeder served as Head of Global Sales at Maschmeyer Group and was an investor in Seed + Speed Ventures. Originally from the Netherlands, he grew up in South Africa and graduated with a BA in Law from Bertolt Brecht University.
Illustration: Dom Guzman
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