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As the cost to build a software prototype has plummeted over the past 10 years, the number of tech startups has grown dramatically. Only, the number of active venture capitalists has actually shrunk, and it’s still super expensive to scale a business as growth requires serious cash (see 5 Hidden Challenges with SaaS). After putting together a working product, it’s often time to raise a seed round in the $300,000-$500,000 range (see Death to the $700k Seed Round).

Here are a few thoughts on what’s required to raise a seed round:

• Enough customers to prove product/market fit (often in the range of 10 to 50 paying customers)
• $10,000 or more in annual recurring revenue
• 3 reference customers that aren’t friendlies (e.g. customers that didn’t come from prior relationships)
• Strong alignment and rapport between the entrepreneurs and angel investors

Raising a seed round outside of the major startup regions is hard but readily achievable with enough traction and market opportunity. Entrepreneurs that pitch an idea without serious progress will have a difficult time raising money.

What else? What are some other thoughts on what’s required to raise a seed round?

Back in the summer of 2009 we were pitching VCs all over the country. At the end of each meeting, one of the next steps was for the VC to introduce us to a few of their portfolio companies so that marketers in the field could try out our software and report back on the effectiveness. Of course, marketers from fast-growing, venture-backed companies were right in our sweet spot to use the Pardot software. Here are a few thoughts on lead generation as a side effect of pitching VCs:

• Products that are more broadly applicable, like a B2B marketing platform, will get more leads from VCs
• Testimonials and other forms of social proof will be required for the leads, so have them ready in advance
• VCs that don’t offer to make intros to other portfolio companies or other potential prospects, aren’t interested in investing
• Positive feedback from portfolio companies is critical as part of building a story for VCs to invest

Even if VCs don’t end up investing in the startup, just developing a relationship with them and getting relevant introductions is a positive by-product of the process. Pitching VCs is more than just trying to raise money.

What else? What are some other thoughts on lead generation as a side effect of pitching VCs?

One of the common tenets of the startup community is the importance of equity to align interests and share in the value created. There are a number of different ways to provide equity with stock options, restricted stock units, and profit interests. Stock options are still popular but one aspect of them that isn’t well understood is the concept of the strike price and how that plays into exercising the options to buy the equity.

The strike price corresponds with the value of the company at the time the equity was issued. So, if the company is worth $1 million, and there are 1 million shares of stock, each share of stock is worth $1. Thus, joining a startup with these characteristics and receiving stock options for 1% of the business would represent 10,000 shares at a strike price of $1 per share. Once the options are vested, to get the equity would require the employee to pay $10,000 to the company and now the employee would own the 10,000 shares (whereas before they had the right to buy the shares at that specified price but didn’t own anything else).

If the company is acquired, immediately exercising the options and then receiving the acquisition value for the equity is an easy decision (assuming it’s above the strike price). Things get much more difficult when deciding to leave a company as option agreements almost always require exercising the options within 1-3 months of departure, otherwise the options are forfeited. Now, it’s a case of paying cash for some equity that is illiquid (assuming the company hasn’t gone public) and might not ever be worth much.

Bigger strike prices combined with bigger option packages can be great for potentially having a nice chunk of a valuable startup, but they can also require paying a large amount of cash to turn the options into equity. Do the math on the stock option purchase cost when joining a startup.

What else? What are some other thoughts on stock options and the cost to purchase the equity?

One of the more common refrains I hear is “I want to be an entrepreneur but I don’t have a good idea.” Yes, it’s true that an idea is important, but it’s also true that it isn’t as hard as it seems to start systematically evaluating ideas. Ideas come in all shapes and sizes and most entrepreneurs pivot at least once before hitting on something that works.

Here are a few thoughts on finding a startup idea:

• Look at operational challenges or technical inefficiencies at work and ask if a new product or solution could help
• Ask friends and coworkers what problems they run into on a regular basis
• Read Sand Hill’s list of recent venture fundings
• Write down a list of the top five trends in your industry and how they’ll play out over the next 5-10 years
• Research the top five trends in technology and evaluate how they’ll affect your industry (top 10 tech trends for 2014)

Now, start collecting ideas your ideas in a Google Spreadsheet and refer back to it on a regular basis. Finding an idea can take time but with effort something strong will emerge. Of course, once an idea is in place, the hard part is customer development and proving there’s a real need in the market.

What else? What are some other ways to come up with startup ideas?

Startups are messy. Very messy. Everything is harder and more convoluted than expected. Stories of success outnumber the stories of difficulty 100:1.

The timing was wrong.

The market didn’t care for the product.

The team member didn’t work out.

The funding fell through.

The site went down.

The mobile app crashed.

The partner didn’t deliver.

The passion died.

The customer didn’t sign the contract.

And, in the end, things were still successful. Adversity was conquered. Everything worked out.

Startups are messy, and that’s a big part of the fun.

Five years ago I published a list of a few dozen entrepreneur blogs that I enjoyed reading on a regular basis. Over time, preferences and styles changed. Now, I still read ~10 posts on a daily basis but I no longer read 100+ like I used to do. Here are the nine blogs entrepreneurs should read on a regular basis:

• Steve Blank
• The Growth Guy
• A VC
• infoChachkie
• Both Sides of the Table
• Hacker News (content aggregator)
• First Round Review
• Begin the Begin
• Ben’s Blog

These blogs, read using Digg Reader (both in my Chrome browser and the native app on my iPhone), make for quality, fresh content on a daily basis that I find invaluable.

What else? What other blogs would you add to this list of top startup blogs for entrepreneurs?

Back in summer 2009 we had just cleared $1 million in annual recurring revenue at Pardot after being in business for almost two-and-a-half years. Globally, the macro economy was in the dumps and Software-as-a-Service (SaaS) companies weren’t in favor. Marketing automation as a market appeared to be a huge opportunity and all signs from our customers pointed to the product being a pain killer and not a vitamin. The next logical step was to raise venture capital and build a huge company. Or so we thought.

Fundraising was a full-time job for four months. After talking to 29 venture firms, doing a half dozen full partner pitches, and getting to verbal term sheet discussions, we decided to call off the process and focus on building the business without institutional capital (see 4 Reasons to Raise Venture Capital). Here are a few thoughts on fundraising while still building a business:

• Know that fundraising is a full-time job, and plan accordingly
• Seek help from team members to offload non-essential tasks and free up responsibilities
• Align potential investors around a desired timeframe and close date, so that there’s a sense of urgency
• Create a competitive process to bring multiple options to the table in order to maximize strength
• Always have a backup plan in place in the event fundraising doesn’t work out as planned

Raising money is incredibly difficult, and, combined with building a business, makes it even harder. Fundraising should be a team effort and everyone needs to be on the same page around responsibilities and continuing to push the startup forward.

What else? What are some other thoughts on fundraising while still building a business?