You have probably heard the jargon investors use to define the 'stage' of their investments: pre-Seed, Seed, Series A, Series B and beyond. What these titles lack in creativity, they make up for in practicality as the startup ecosystem seeks a common language to categorise early stage companies.
Tidal Ventures is a Seed fund. We subscribe to the notion that Seed is a phase (capturing Early Seed + Seed + Late Seed / Seed Extension). We believe it is far more useful to focus on the proof points that founding teams need to hit during this phase rather than the size of your team, revenue booked or dollars raised.
Seed = the period of time a venture-backed startup has to demonstrate the proof points required to raise a Series A from an institutional investor.
Let's focus on what actually needs to happen during the Seed Phase, from the perspective of three different "success milestones": (1) product-market fit, (2) finding a scalable path to market and (3) hiring a gun team.
Focus Area: Getting to Product-Market Fit
First and foremost, the Seed Phase is all about building an exceptional product that your customers simply love to use.
Focus Area: Finding a Scalable Path to Market
During the Seed Phase, we formulate a hypothesis on the best way to access the customer and then test and iterate until we find the optimal channel.
Focus Area: Hiring a Gun Team
The hiring decisions you make during your Seed Phase are critical and will impact culture well into the life of your business.
Establishing 'proof points' and tracking performance
It's helpful to attach tangible proof points to each of these areas to help focus your team around a clear success milestone. For example:
Timing and runway
Seed is a phase with an undefined time period and the biggest constraint for the founder is usually capital availability. Seed businesses fail when they can't hit their proof points before their cash runway ends. This is sometimes due to uncontrollable risk factors such as market timing or founder break-ups.
We focus on the controllable elements: planning and team execution. By setting clear proof points upfront, founders can be clear with themselves and their team about what success looks like. By demonstrating the capability to execute against a plan, they give themselves the best likelihood of a successful Seed outcome, whether that is a Series A fundraise or otherwise.
Nailing the Seed phase
To close, here are a few things we see successful founders focus on in their Seed phase:
- Building a product that is truly mission-critical to the customer. Great product leaders will ask themselves early: "Is my product (1) core to operations (2) revenue-enhancing (3) cost-saving or (4) nice-to-have?" Don't be 4!
- Use clever design to short-circuit the "time to value" for the customer: Is there a way you can get your customers to quantify the actual value that your product is bringing them early in their user journey?
- Focus on efficient deployment of capital: If you're raising funds, ensure you've budgeted enough time to hit your proof points before raising again.
- Focus on monetisation earlier rather than later: customer revenue trumps investor capital any day of the week.
- Figure out your sustainable unit economics: Find a low-cost acquisition path and don't wait too long to figure out what you can charge your customers, use that Seed phase to test pricing and packaging before you scale.