How is the early stage funding market?

It’s a question I think I’m getting daily, so it’s a good one to answer. Maybe because of articles like this FT piece and rumors of a NESTA £1Bn fund or maybe because Seedcamp has recently funded 13 companies in a short space of time, I assume it’s fair to ask. Like us, you’ve probably been reading about how 2008 actually turned out to be a great year for raising money and that we should expected much glooom for 2009. In the spirt of getting on with business, I wanted to offer a few tips to make this year a bit easier to navigate.

In short, at the early stage it’s always been difficult to raise money and that’s inherently why we started Seedcamp. It’s a brief answer, but there it is. It’s always been an uphill battle and sure, the weather has gotten stormier but we feel it less than for those who are going from an easier terrain. So maybe I have a more optimistic view that things aren’t so bad. Therefore my response is that most of the Seedcampers that want to raise money have been able to do so in the past few months and those that can afford not to raise money right now are baring down the hatches and focusing on product, customers, and revenue. Yes, there are a couple that are choosing not to because they have paying customers. Based on their experiences, we thought it worthwhile to share some tips which are not easy but worth the while

1) Look internally – everyone else is tightening the purse strings and so should you. Look to cut or keep costs low and negotiate where possible. Everything is up for negotiation right now. If you don’t ask, you will never know what’s possible. As long as your product and customers don’t suffer, you have to get as lean as possible. Everyone talks about cutting costs, so I won’t belabor this point any longer.

2) Stop wasting time complaining about the state of affairs and opining about whether we’re on the right part of the bottom of the U or if next week or next month it will get better. If you catch yourself talking about this you are not spending enough time on your product or the right investors. Your time is better spent working on your product and bringing on the best people into your team.

3) Go after the proactive, aggressive investors – there are several investors out there both in the US and Europe who believe this is the right time to invest in early stage businesses. I agree they’re not easy to find, but if you ask the right questions you will find them. Do note that they are therefore even more closely scrutinizing your likelihood of success, so you have to be well prepared to explain your story

4) As ever, the most important elements are your story and your progress. Make sure you have a clear story to tell and convince your audience WHY what you are building is so important and then back that up with how you are measuring or how you will measure your progress/milestones

5) Finally, stop wasting time going after the wrong investors. As Fred and others mentioned in the FT article, more funds are being set aside for portfolio investments and many investors will be quieter in 2009. Therefore it’s even more important for you to hone your story fully. The quicker you can tell your story the quicker you can find out whether a) that investor is intrigued by the story or not and b) whether they are investing at all or not. If you’re wasting 5-6 meetings with an investor and you have no idea whether they will put in any money or not, you are not spending that time on your product or meeting the right investors.

This is what we’ve mostly been advising Seedcamp companies to do as we all figure out what to focus on in these turbulent times. Hope it’s somewhat helpful to others in the early stage venturing world.

So, back to you… would you agree/disagree w/the tips or the sentiments? Anyone else want to talk about success stories in the recent 3-4 months?