Don't believe the hype.
“There have never been so many seed funds.”
“Rounds are so competitive.”
“Valuations have never been so high.”
All of those are true in the European early-stage market right now.
But that doesn’t make early-stage fundraising easy, especially for first-time founders.
The market is undeniably hot, but that doesn't mean a majority of rounds get done overnight—far from it. “Dry powder”, the capital that investors have at their disposal, is always less than the number of startups looking for funding. So when established players say they’ve never seen such a busy market, they’re right—but there have also never been so many great startups to fund.
The competition is real
As a founder, even though there are more options for funding than ever before, there’s also more competition for that funding. The competition doesn’t just come from other startups in your space, it comes from everything else that investors could fund.
Overall, while it’s undeniable that the top prices for early-stage rounds have increased (a lot) and the average price has also gone up (though by less, relatively speaking), it’s not clear that the proportion of companies getting funded has gone up, nor that expectations have gone down. If anything, I’d say the bar is higher.
Sure, if you’re looking to build a “SaaS for the data stack”, and you used to run product or infrastructure at Datadog or Confluent, it’s probably the easiest it’s ever been to raise–pre-product, pre-revenue, pre-anything. If you seem to check all the boxes, investors aren’t too worried about doing much due diligence or negotiating the price.
But if you’re a young, first-time founder, the same rules don’t apply.
The truth is that the scene of early-stage funding has shifted, and very few funds want to invest in rounds ~1M€. So you’ll likely get quite a bit of enthusiasm right away, because they do invest those amounts in pitch decks, but only with people they can “trust” because of their existing relationship, track record or someone else’s trust. So a few weeks later, you’re likely to be sitting with a lot more No’s than your first impressions suggested.
So what are you to do? Probably go into “high resolution fundraising” mode, raising a few hundred thousand euros from people who know your industry/market well and so they might have a bit more of an appetite for risk. This will give you some capital to put to work and some momentum, letting you go back to investors not as first-time founders, but as a startup with traction.
So stay focused, don’t read too much into any of it, and keep on pushing. The discussions you have now are a good opportunity to build relationships, and traction will bring the attention of funds everywhere, which will put pressure on those you’re already in touch with.
Getting No’s is all part of the game.
And yes, it gets tiring after a while explaining the same things over and over again, only to get asked what your TAM is at the end of every other call. It might sound like a parody, but unless you’re in a very hot space or your traction is completely crazy, you’re likely to have several meetings like that. But you have to remember that all it takes to change the tide is one term-sheet, one real yes.
You also have to remember that there aren't many people who can succeed at building the business you’re setting out to build. The fact that you keep on pushing in the face of all those No's is what will convince others down the line that you saw something that they didn't.
Because ultimately, that's who every investor wants to back: people who build what they believe the world needs, whether or not the world knows it yet.
At The Family, we take pride in being the first “Yes” & we’re not scared to work with founders whose ideas might seem crazy to many people. We’ve opened applications for our next batch, which will start in September. We’d love to hear about what you are building!