Founders going after venture dollars must, at some point, build their seed pitch and sit down with investors to tell their story and recruit dollars, hearts, and minds to their cause. A seed round is generally the first round raised from people who are not related to you in some way – either through family or friendship. Convincing investors to back your idea is not a science, it is an art of storytelling, relationship building and the realities of the market and your problem area.
We at Madrona, have a long history spanning 26 years of investing in seed-stage and pre-seed stage companies and working with founders from Day One for the long run. This means working alongside founders as they recruit their first hires, find product-market fit, sign their first customers, and navigate a myriad of critical decisions.
We sat down with four of our investors, Elisa La Cava, Matt McIlwain, Soma Somasegar and Sudip Chakrabarti, who meet with early founders every week to get their thoughts on prepping your seed pitch – what they are looking for, what founders should be looking for (Matt wrote a whole blog post about that awhile back), and a couple of pieces of hard-won observations on some of the biggest challenges for seed stage companies.
What characteristics do you look for in founding teams?
Soma: Scrappiness is a trait I seek out. Ideas can evolve and products can pivot over time, so a team’s ability to figure out how to make something work in a problem space is valuable. I try to gauge how passionate a team is about this particular problem space and their willingness to give everything they have to solve a problem 10x better than existing solutions for years to come.Matt: Genuine curiosity and humility. Does this founder have a natural curiosity to keep asking the question “why” and drill down to a deeper understanding of the problem they want to solve? There’s a real sincere humility that comes with having a curious mind. Then, the ability to triangulate between diverse data points and arrive at an informed point of view and test your hypothesis in an agile way becomes important.
Genuine curiosity and humility. Does this founder have a natural curiosity to keep asking the question “why” and drill down to a deeper understanding of the problem they want to solve? – Matt McIlwain
Sudip: For me, it’s important to have high conviction about founder-problem fit. I look for founders with a deep understanding of the problem they’re going after, domain expertise, and experience. Most enterprise companies are built when a founder has a frustration with a previous experience and then wants to solve that problem for everyone else. After that, I seek out people with the ability to put themselves in their customer’s shoes and think about a customer’s pain points.
What are qualities you look for in the market?
Soma: I focus on the broad problem space. Is this a real, high-priority problem that needs a solution? If there is a solution, do customers see the benefit of it? Also, what is the opportunity size and is it big enough to go after? If there is a huge opportunity and it’s paired with the right team pursuing it, then I’m willing to take a bet on it.
The voice of the customer is one of the most important things that I look at when assessing how successful a product idea can be. – Elisa La Cava
Elisa: The voice of the customer is one of the most important things that I look at when assessing how successful a product idea can be. Talking to people who fit the target customer persona and asking questions such as “how often does this problem occur in your day-to-day role?” and “Is this solution a nice-to-have or a need-to-have?” is very illuminating. When I hear responses like “Wow, that is seriously useful,” or “If the product can really pull off [insert new capability here], then it would make things so much easier/faster/better for me/my team/etc.,” I pay close attention. These are important inputs that help me gain conviction as to whether a product idea has a high probability for success.
If I believe in the team and their conviction, I like to see today that their product is solving a really hair-on-fire problem. – Sudip Chakrabarti
Sudip: Many venture investors will tell you they’re looking for a “billion-dollar market”, it’s a common phrase. That’s true, but not entirely true. I think we’re looking for a billion-dollar market that will be here in 3-5 years. If I believe in the team and their conviction, I like to see today that their product is solving a really hair-on-fire problem. That may be a small market today, but if I believe thematically that the market will grow then that’s a great place to be because you’re not fighting off incumbents and you are riding a market trend and creating your own market.
What do you enjoy the most about working with companies at the seed stage?
Soma: There’s a lot of heavy lifting that needs to happen in building a company – whether it’s building the team, thinking about product or go-to-market strategy, or finding the first cohort of customers. There’s nothing more exciting to me than helping place the building blocks that will someday result in the next big enterprise. Being able to be on the ground floor and be there from Day One is an amazing, exciting feeling.
There’s nothing more exciting to me than helping place the building blocks that will someday result in the next big enterprise. – S. Somasegar
Elisa: What I love the most about working with early companies is that there’s so much to be done, whether that’s making the first hires on your team, building the very first version of your product or doing discovery with customers. There’s so much you can test even before you have a product to put in front of customers. It really is unlimited. Because of that, it forces me to think tactically about how to set and maintain focus and make progress towards meaningful milestones over time.
I’m inspired by building genuine relationships with entrepreneurs who have the passionate desire to go and build a better solution to a problem that exists in the world. – Matt McIlwain
Matt: At the early stages of a company, there’s a balance between deciding what to innovate on and disrupt vs. what boundaries aren’t worth testing. Iterating on a product and arriving at a solution that works is a fun part of the process. Throughout that, I’m inspired by building genuine relationships with entrepreneurs who have the passionate desire to go and build a better solution to a problem that exists in the world.
What is your most repeated piece of advice for seed stage founders?
Matt: Tailor your message for your different audiences. Most often entrepreneurs are swimming in the details of the problem they’re solving. It’s critical to know the details in order to build a compelling solution to your problem, but being able to abstract up your message based on who you’re speaking to, whether that’s a user or an economic buyer or when talking to the press or potential investors, is extremely beneficial. Each layer needs to be coherent on its own but also integrated with the others. In this regard, fundraising advice I give out is to treat your deck as a screenplay and not a novel. Screenplays give short images and snippets of the plot, but they aren’t as rich as a novel with all the dialogue and details, but if the director does a good job they can still communicate the ethos of their story.
Soma: Think big, but execute one step at a time. Your vision can be broad but know that you’ll only get a single brick done today. Figure out what that brick is and stay focused on that. Once you have that brick in place, then you can build on top of that.
Think big, but execute one step at a time. – S. Somasegar
Sudip: A blind spot I often see in technical founding teams is that technology and product come first, and go-to-market strategy comes much later. One piece of advice I freely give out to founders is it’s important to think about your go-to-market strategy from Day Zero. In today’s day and age, your go-to-market strategy needs to be part of your product and how you’re building it because the way customers buy enterprise software has changed. If you think your product will sell top-down then it can be built in a certain way, but if your GTM strategy is driven by self-serve adoption, then you need to build it in a different way.
As a founder, what are the qualities to seek out in your first investor?
Matt: I’d look for somebody that I can trust. I’d do my own triangulation to find out if they’re willing to roll up their sleeves and help and work alongside us on all of the elements of building a company. It’s important that they have the experience and resources to be helpful, but also respect that the founders are running the business and they are there to be a sounding board and advisor in the face of difficult decisions.Elisa: As a founder, you want to know how your first investor will think, how you’ll approach problems together as you grow, and how well you work together. Your seed investor will often be the first external person on your board and help you shape the strategic and operational future of the company. It’s a really important relationship that lasts a long time. To that end, the CEO of a company I ultimately invested in employed a unique strategy I had never experienced before – in one of our later diligence meetings, he asked that we reserve time for a mock board discussion that included strategic questions for us to tackle. This allowed us to work together on real challenges the company was facing as well as see how well we worked together. We found the exercise to be incredibly effective and I thought it was a great idea other entrepreneurs could emulate.
As a founder, you want to know how your first investor will think, how you’ll approach problems together as you grow, and how well you work together. It’s a really important relationship that lasts a long time. – Elisa La Cava
Sudip: It’s important to have investors who have prepared minds. An investor with a prepared mind is someone who has done their homework and has conviction about a particular idea. Every company takes much longer than anyone initially thinks to build and if your first set of investors are missing this deep conviction, they may push you in a direction to chase a short-term benefit instead of optimizing for the long game. Another important quality in investors is one that comes from being close to many early-stage companies and that is having deep founder empathy and a maturity to help you through the ups and downs of building a company.
What makes Madrona a great partner for seed stage companies?
Soma: We believe in being a trusted partner throughout the entire journey of building a company. That’s our stated strategy and the only way we know how to operate. We like to roll up our sleeves and help with recruiting or interviewing or talking to customers or strategy sessions about product or go to market, whatever a company needs. Also, Seattle is a great technology ecosystem, and we have the broadest and deepest connections of any venture firm to the companies here and an unparalleled understanding of their products, their ecosystems, and the directions they’re headed in.
Matt: When we invest in companies early, we’re making a commitment to being there right from the beginning and rolling up our sleeves right away. We’re excited to do that. With our time and experience, we can help look around the next corner and navigate the big decisions at every stage of a company’s journey whether that’s finding product-market fit, or whether to raise more capital or go public. Finally, we have a very strong culture of teamwork that resonates throughout our entire firm. Everyone at Madrona is looking out for every company across our portfolio.
Elisa: The collective knowledge and understanding across our entire group of the different challenges and the problems early companies face is incredibly deep. We have more than 85 active portfolio companies and working with them has led to us gaining a lot of experience with making critical decisions at important times for early companies. As a result, we’re familiar with strategies that can lead to amazing wins, but also (and perhaps, more importantly) are knowledgeable about common pitfalls at every stage and do everything we can to help companies outright avoid, or better work through them, together.