VC

How to Raise Seed Funding Your Startup

Seed money, also known as seed funding is the early stage of startup funding series. About 29% of startups fail due to their struggles in raising capital through funding. If you’re among the struggling few trying to understand how to raise seed money, let’s not waste time and dive right into the topic.
Why Should One Consider Seed Funding?
The next question obviously boils down to why startups opt for seed funding? In contrast to the traditional methods of raising capital, here the business owner is not on a deadline to get the return on investment – ROI, hence he focuses on product development and market research to launch the product.
Generating Seed Money for the Business
Most startup founders look within their own households when it comes to raising capital for their venture(s). It makes sense, as no one wants to affect their credit ratings and risk getting stuck in a debt that would leave them in a dire mortgage situation. When generating funds in this stage of the startup, business owners can explore three avenues, including Friends and Family, Angel Investors, Micro VCs, and Crowdfunding.
1. Friends and Family
Being a part of a close-knit community, startup owners will aspire to find investors within their close circles and neighborhood. They know that friends and family care about one’s ambitions, hence the payback time and criteria aren’t are rigid. Additionally, this round of funding – as the name suggests helps generate between $1,000 to under $200,000 for the startup owner’s initial investment.
2. Angel Investors
Stepping up the investment pool a notch, one can find investors outside their neighborhood. These investors provide a larger chunk of money as compared to friends and family. On the flip side, these investors are more cautious about the business idea and seek returns along with the business plan.
It’s understood that these investors are risk-taking individuals as they place a sizable chunk – based on their own savings and investments, into the business that is still in its ideation phase. Hence, most of them are a little more rigid in terms of ROI as compared to friends and family. Moreover, a startup owner can generate anywhere between a five-figure to a six-figure capital through these angel investors.
3. Early Stage Venture Capital Firms
The criteria required to generate funding from the micro venture capital (Micro VC) firms is not for the faint-hearted startup owners. Startup owners who are well grounded in the core of their venture’s idea; those who are willing to compete as their market research is on point; and those who can’t contain themselves from talking about their business idea. Members of the VC tend to conduct a lot of scrutiny over the business plan as they intend on raising portions of equity here.
Firms such as Andreessen Horowitz and 500 startups make startup owners compete by pitching their business venture and defend their business strategy. The catch here is that the business owner has an opportunity to raise a significantly larger capital as compared to friends and family, and angel investors by convincing the venture capital firm’s representatives.
4. Crowdfunding
As the name suggests, it is the public that funds the business idea. These fundraisers tend to find out about the business venture through social media and other online platforms.
Usually, the business idea is a presentation pitch with a simple idea. It’s followed by a problem statement regarding something lacking in the current ecosystem, and how this business venture solves the problem. The pitch then explains the goal and then invites the public to fund the business idea. In simple terms, crowdfunding reduces the time an entrepreneur needs to spend on constantly presenting their business idea to investors. Here the backer reads about the venture and invests, so there’s a lot of emphasis on the pitch.
Details about the venture must be accessible on an authentic online platform. Investors keep checking in on this platform to read about places to invest and then connect with the entrepreneur, without fearing that this might be a scam. Hence, with the presentation already out of the way; if the investor and the business owner now wish to meet, they have their work cut out for them. This raises the success rate of this meeting as they tend to discuss minor details, only after understanding the main idea of the business.
In a Nutshell:
Seed Funding is the primary phase of the startup funding stages, where the startup owner raises capital to invest in product development and market research. There are multiple avenues, the owner can use to generate funds.

Friends and Family Round: Raising capital through friends and family. It’s not are rigid and thus has lower funding bracket.
Angel Investors: Risk-taking professionals who invest in startups knowing it’s risky but has a high return.
Micro VCs: Venture Capital firms that lend out funding based on the business owner’s business plan, strategy, and how they compete for the pitch. Funding generated here is the highest and has more rigidity than friends and family, and angel investors.
Crowdfunding: A process where investors seek out startup ventures and fund the business idea.

Top 5 Benefits of Growing a SaaS Startup Outside of Silicon Valley

I’ve spent the last 13 months as Marketing Director for a SaaS company, Ambition, that is based in Chattanooga. Over the last year, I’ve experienced firsthand the benefits – and detriments – that come with growing a SaaS startup not just outside of Silicon Valley, but a major metropolitan area. The purpose of this story is to help you better understand what those benefits and challenges will be, and how to use the former to your advantage while mitigating the latter.
Want to grow a SaaS startup beyond the Valley? Here are 5 reasons you should – and also several warnings of what you’ll be up against.

Pictured: Ambition Founders, Brian, Travis, Jared, & Wes (from left)
Some quick background specs on Ambition. Our four co-founders spun Ambition out of two previously failed startups in February 2013. After launching with a team of 6 engineers, plus one graphic designer, they slowly, steadily began building an enterprise software that could best be described as “Fantasy Football for Sales,” at its initial stages.
Ambition was accepted into the W14 Y Combinator batch and graduated in March 2014 near the top of our class. Against the strong urging of numerous investors and SV bigwigs around that time, our cofounders opted to keep the company here, rather than move it to the Valley.
It’s (mostly) worked out. As of June 2015, Ambition is gaining traction as a sales productivity and analytics tool used by the likes of Dropbox and Berkshire Hathaway-company Clayton Homes, the latter company becoming the subject of an effusive Harvard Business Review article about Ambition. We’ve scaled our team to 18 members, including 6 engineers, 2 data scientists (one a Harvard Ph.D in Atomic Physics with stints at MIT and NASA), and committed Marketing, Sales and Customer Success teams.
In the process, we’ve faced the ups and downs that come with being a SaaS startup outside of Silicon Valley. First, let’s go over the top 5 benefits.
Top 5 Benefits of Growing a SaaS Startup Beyond Silicon Valley
In no particular order, here are the 5 most pivotal benefits we’ve enjoyed as a SaaS startup based in Chattanooga.
1) Low burn rate.
Here in Chattanooga, we operate at roughly one-fifth the cost it would take to run Ambition in San Francisco and the surrounding area.

Pictured: Death, a non-optimal result.
That tweetstorm Marc Andreessen went on awhile back about how high burn rates are going to spell the deaths of numerous high-profile SaaS startups in the near future? Not applicable to Ambition. Granted, this benefit isn’t so much about operating outside of Silicon Valley as it is operating in an inexpensive metropolitan area.
Launching a SaaS startup based in Manhattan? Good luck. Launching one based in Pittsburgh, Raleigh-Durham, or Detroit? You’re in much better shape.
2) Minimal employee turnover.
Our total employee turnover — including terminations and employees who’ve left for other companies — is 3. That’s over a total of 27 months.
Pictured: Pray it’s no one from the UX team.
When you’re growing a SaaS startup, the ability to create office continuity and attract and retain top talent is a huge blessing. It’s much easier to source great candidates in Silicon Valley, to be sure, but it’s also much easier to lose them or go broke trying to keep them at your company.
Of the 3 employees we’ve lost, 2 were let go and 1 left for a Cofounder/C-Level gig at a new startup. After 27 months, our employee loss ratio of less than 5 percent. Meanwhile, we still have all of our core engineers, which has been a big reason we’ve been able to build an industry-leading product in such quick fashion.
3) Only gig in town.
Growing a SaaS startup outside the valley – especially if you’re in a smaller market – has the major additional benefit of being the only gig in town.
How’s that a benefit? The War for Talent is less World War II, and more Gulf War I. Two examples we’ve experienced firsthand at Ambition.
Exhibit A. Our top Data Scientist, Rob deCarvalho, is a Harvard Ph.D in Atomic Physics with backgrounds at NASA and MIT. As goes without saying, Rob is an incredibly valued member of our team and huge asset to any SaaS organization. And he reached out to us. The reason? His wife wanted to move back to Chattanooga – and after doing some research, Rob informed us that we were the only company he wanted to join. Our co-founders couldn’t offer him quickly enough.
Exhibit B. Our Director of Customer Success, Caleb Williford, is a veteran of two Silicon Valley SaaS companies, Salesforce and IntelliTrans, who also came to us because he wanted to return to East Tennessee, and saw Ambition is the top gig in town.
4) No hype/distractions.
Living in a quiet, small town like Chattanooga naturally improves employee focus.
While there are plenty of fun things to do in Chattanooga – hiking, nightlife, etc. — and a growing, tight-knit startup community, this is about as far from the Las Vegases, Miamis and yes, Silicon Valleys from the world as you can get.

Pictured: How your employees will look after an all-night trip to the club and/or Hack-a-Thon.
It’s a hype-free zone, which means fewer egos, fewer distractions, and the absence of the “We’ve made it” sensibility that afflicts many employees in the Valley. The biggest thing afflicting Ambition employees is a propensity to work around the clock, to the point where we have begun strictly enforcing an annual time-off policy.
5) Chip on the shoulder.
Dovetailing off the last point, Ambition employees work extra hard and push ourselves to go the extra mile because of our location. Because we’re not in Silicon Valley, we feel like we have to fight for every ounce of industry and public respect we can get. There’s a deeply-rooted need to prove ourselves that drives our whole team.
And 4 Challenges of Growing a SaaS Startup Beyond Silicon Valley
Growing a SaaS startup outside of Silicon Valley hasn’t been all rainbows and sunshine. I’d counterbalance the above benefits with the following challenges that our team has faced.
1) Geography-based VC skepticism.
Not as big of an issue if you hail from Boston, New York, L.A., Atlanta, Seattle, Salt Lake City, or some other startup hub, but definitely something to expect if you’re headquartered in a non-traditional startup city.
2) Significantly fewer networking opportunities
As our CEO has noted, the great thing about Silicon Valley – and the reason every SaaS founder should attempt to spend some time there – is the incredible opportunities for networking. Whether its sourcing new talent, meeting a pivotal new VC, or talking with an industry expert who can give you the next big idea for your product, coffee meetings in Silicon Valley are always ripe with potential.
This is a value-add unique to Silicon Valley — as much talent as there is in New York, LA, etc., no city has the condensed ecosystem of talented and connected players in the SaaS landscape.
3) Customer scarcity
This is an underrated benefit of growing a SaaS company in Silicon Valley. SaaS companies tend to be early adopters of up-and-coming SaaS startups, with VC’s and industry connections sourcing new prospects and facilitating face-to-face meetings with decision makers.
Here in Chattanooga, the lack of viable customers in immediate area makes selling more difficult. We often have to close deals without the benefit of a face-to-face meeting with a prospect and closing a major new client face-to-face typically requires a plane ticket or daytrip to nearby metropolitan areas Nashville, Knoxville, Atlanta and Birmingham.
4) Prospect skepticism
How innovative can a tech company based out of Chattanooga be? I haven’t been asked this question directly, but I’ve heard it in the voice at the other end of the line on many prospect conversations we’ve had.
Many of our prospects couldn’t even point out Chattanooga on a map – which is why their eyes always bug out when we tell them we have an ex-Google CTO, a Harvard physicist in charge of our data science, and a published endorsement from the Harvard Business Review verifying Ambition’s effectiveness.
No one in Silicon Valley has that problem. The smaller the city you’re headquartered in, however, the more you’ll have to account for it in your sales and marketing efforts.
Achieving Success Beyond Silicon Valley
All that, and I’ve just scratched the surface of this topic. If you want an authoritative text on the subject, I highly recommend Mike Belsito’s Startup Seed Funding for the Rest of Us.
Achieving a SaaS startup success outside of Silicon Valley is a difficult task – it’s also far from impossible. Just look at major success stories such as HubSpot (Boston), SalesLoft/Mailchimp (Atlanta), Cirrus Insight (Maryville, TN/Los Angeles), and Domo (Utah’s Silicon Slopes).
Above all, don’t let Silicon Valley intimidate you. Ambition’s cofounders highly recommend that every SaaS founder makes it a priority to experience Silicon Valley, especially if you can do so via an accelerator. Having that experience will de-mythologize the startup world for you, introduce you to powerful investors and new connections, and leave you with new insights that can help scale your SaaS company successfully — regardless of location.
Image Credit: Flickr/Bryce Edwards