Questions

Seed raise on angelist via convertible debt note?

Seed Funding we have an MVP, several hundred paid users, two notable healthcare pilot partnerships and a small payer pilot for our mhealth behavior change platform as we graduate from a health accelerator. We can access 20k from the accelerator for 4% of the business in august, but we were considering a small seed raise of 50k as a convertible debt note ( android development/marketing/some travel for key enterprise thought leadership opportunities) Is there a downside to raising a convertible debt note for us?

3answers

There's no downside to raising on a note other than that any fundraising is time-consuming. It is becoming standard practice to raise money from angels on notes with caps adjusting upwards based on key points of the business proving more viable.

The worst mistake I see many accelerator companies make is that they don't fundraise enough to really stand-out at Demo Day or whatever the conclusion event is for your accelerator. The reality of it is that there is significant accelerator fatigue and most cohorts from even top accelerators are failing to find much investor interest/enthusiasm upon graduation. Companies must really be striving to be the *most* exciting (by way of traction or evidence of viability) by the time they graduate, so raising additional money now makes a lot of sense.


Answered 5 years ago

No downside, as long as whatever money you raise gets you to the conclusion of an important business experiment. For example, if the $50k gets you to the point where you can demonstrate a growing revenue stream, then it's probably a good idea. If not, then you should evaluate what financing you need in order to prove traction in the market, then raise that much. Since you already have some paying customers, people will ask questions about the "quality" of that revenue. Will it recur? Is it representative of the customer base you intend to sell into? Are there enough of them and enough revenue in order to prove that your unit economics are good? Sorry that this answer has more questions in it, but that's how it goes.


Answered 5 years ago

There's no reason for you to avoid raising using a convertible note. There are plenty of investors who prefer priced rounds, but for the stage you're at, none of these folks will be involved in the deal.

However, you mention using AngelList. I'm not sure if you intend to try and source that 50k from AngelList -- if so, I'd recommend against that. For such an early part of the raise, you're far better off looking for people already in your network. AngelList's syndicate or Invest Online features are usually more successful for entrepreneurs that already have some fundraising traction and are looking to fill out their round.

If you're looking to find that first investor, there are some ways to use AngelList that could help:
1. You can apply to incubators using AngelList (a great choice, especially if you're not well networked to investors today)
2. You can create a better offline target list of investors by location, category, #/type of investments, etc.
3. You can follow investors, and hope they get intrigued (make sure to list your company and short pitch in your bio)
4. You can more easily identify which investors you may already be connected with via a friend
There are probably a handful of angels, like Sundeep Ahuja, who have published a way for Startups to get in touch

I find it easiest to think of AngelList as programmatic infrastructure for traditional investing decisions - it doesn't change the way investors make decisions, or the strategy you should take to raise financing (at least, it hasn't changed that yet).

Getting your first good investor or two is still much harder than filling folks in after them. The best way to find your first investor is still personal network or introductions.


Answered 5 years ago

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