We often speak to founders raising their first round of capital: $200k to $500k (VC jargon: pre-seed) at Malpani Ventures. In most cases, founders have an MVP and early customers in place. As a general rule, 5 to 10 beta customers in B2B are usually good enough to raise your first round.

With the plethora of information handily available, founders, today, are much more savvy in the way they go about their fundraising process. The quality of pitch decks has generally improved and founders are better equipped with answers to questions VCs ask

Some areas, in my experience, where founders tend to be off, very often are:

• Founders assume the next seed round (~$1 to 2Mn) will be easily raised in the next 9 to 12 months
• Over-estimate growth: In my experience, founders take about 3 months to really figure out capital allocation to target the right sources of growth
• Underestimate their burn rate over the medium term: S&M ROAS looks very different at different scales especially if you don’t have a semblance of PMF or at least the right channel fit

A potentially big TAM and a great founding team are no longer enough to raise a $1Mn+ round - You would not get funded at the pre-seed if these weren’t present already!

The revised bar for a seed round generally includes the following: Growth + Quality of revenue, contribution margin positive UE (or at least a credible path to it) plus repeat/ recurring customers. These are difficult to achieve for any young startup.

A rule of thumb we generally use while funding is this: Startups must raise for HIGHER of the following

• Gross burn (all expenses assuming no revenue) for 12 months 
• Net burn (all expenses less reasonable revenue) for 24 months

This ensures a reasonable runway for founders to focus on getting close to PMF without the pressure of getting all things right in the first instance, or else risk running out of cash!