Rob Go has a nice recent post on “seed round dynamics”. There is much out there on this topic lately (particularly this opus by Paul Graham), but I thought Rob pointed something out thats often overlooked: early support from those who know you.
Most posts on seed funding provide (much needed) guidance on the game theory of managing simultaneous investor conversations: telling a cohesive and compelling story to keep investors excited and frankly, insecure, that the investment might get snatched away before they decide to invest. This is, for better or worse, a reality, but before getting to the stage of early negotiations with traditional VC firms, the process is made much easier by securing the early support Rob is talking abount.
The reason its important is the regularly cited signal-to-noise ratio amongst VCs. Just yesterday David Pakman shared this
Thats a 0.1% hit rate (David operates at the Series A stage, but while the numerator is higher, the denominator is much much higher for seed). So the reality is that the noise of inbound interest is extremely high, and whether they explicitly ask or not, investors are always looking for signals to make their investment decision easier and more accurate. And no matter what style or intensity the diligence an investor is known for, early support from those who a) know the founders extremely well or b) know the underlying target market extremely well, c) commands visibility/credibility in tech/venture is probably *the best* early signal to aid a VC’s process (of course a combination or all three is ideal). If you look at that list, its a fairly broad range of potential sources. An industry operator or your former manager can provide different but equally critical clues on how you might fare as a founder.
What this means is that that early support is not just an input into the process (although it certainly can be), it usually serves as the difference between having something initially seriously considered at all. You can be certain that of the 292 meetings David cites, a very significant % of those became an initial meeting because the business came through or was enorsed by one of the above “early supporters”.
Two last small points. I think the the shape of that support can take different forms. The clearest to understand for an investor is if that person makes an investment. This way the interest is aligned, and its clear without even speaking with them that that person has taken a material leap of faith. Though there are a number of reasons the endorsement can simply take the form of an advisor relationship or referral. Lastly, the invest amount matters much less than the endorsement itself. The nod of approval, be it a referral call, a blog post, or even a tweet, can go a long way to help your process.
