The counter-intuitive secret to raising your first seed round

This article summarizes an episode of TechCrunch’s video series featuring Freestyle Capital general partner Maria Palma and Harlem Capital partner Gabby Cazeau.

Image credit: Timmy Loen

Maria Palma, general partner at Freestyle Capital, argues early revenue is a “false friend” and it is easier to get a lot of early money without it. Her view goes against the common belief that customer growth is the most important factor for getting an investment.

Beyond the pitch deck

Early-stage predictions are unreliable. When VCs see many similar ideas, they stop looking at the numbers and start looking at the founder.

What the deck can’t say
A first meeting is rarely about the presentation, which an investor has already reviewed. It is a way to understand the founder’s reasons and toughness.

Palma says, “95% of my first meeting time is on them as a person and 5% is on the business… I try to spend my time with them on stuff that I can’t get from the deck.”

Searching for a pattern of grit
Investors then look into a founder’s past for clues that predict future determination.

Gabby Cazeau, partner at Harlem Capital, notes, “One of the favorite questions we have in our partner meeting one-on-ones with founders is ‘what’s something competitive that you used to do growing up?’ Because we think that can share a lot about the founder.”

The search for scrappiness

Investors look for proof that a founder can do more with less and turn problems into opportunities. This also makes it important for an investor to judge how fast a person can learn, especially since they often back founders who are new to the industry they plan to change.

Backing fast learners
Cazeau shares an example, “One that I backed, a very young founder, didn’t work in the insurance industry but learned very quickly the ins and outs of it to solve a very specific problem… I just look for patterns of how they’ve been able to access and get into different spaces.”

Distinguishing motivation from privilege
An investor’s job is to put a founder’s achievements in context. Ambition is weighed against a person’s starting point, making some stories far more impressive than others.

Palma explains, “This particular founder is Serbian, has been building companies since he was 14 in Germany. And if he was building companies since he was 14 in San Francisco, it’s still impressive, but not as impressive because it’s a very encouraging ecosystem to do that here.”

Learning the rules of fundraising

Fundraising is a game of subtle signals. New founders often make mistakes that immediately signal their inexperience.

Why “reasonable” numbers fail
One of the most common mistakes is showing financial predictions that seem reasonable. In venture capital, being practical can be seen as a lack of big ideas.

The cost of saying ‘yes’

Reputation is built on rejections