Secret VC article on Midwest startup ecosystem

Our next Secret VC article drops this time tomorrow on StartMidwest. In anticipation, we asked our hidden investor to respond to some of the best comments and questions we received from last month’s column. Some came from public comments on our post and Pete Martin’s and others were sent privately. Look out for the article tomorrow. Until then… Saamer Mansoor: “what stands out most is how much of this hinges on relationship. That can be a strength, but it can also feel unfair when feedback isn’t shared directly with founders, especially knowing how personality types differ greatly.” “You nailed it! Relationship cuts both ways. Trust only works when the feedback loop is real, not whispered. Too often, “fit” becomes a proxy for “we didn’t know how to say no clearly.” That’s a cultural bug, not a feature.” Dug Song : “None of the early founders I’ve backed have had any revenue (or that I counted); some barely had any idea of what the solution could be; all of them I’ve selected for 3 things… “ “Couldn’t agree more. The best early bets aren’t spreadsheets, they’re people wired to keep iterating when the data is thin and bruises are fresh. I’ve started thinking of it as underwriting resilience plus insight: can they see the problem clearly, and will they still be standing when it fights back? That’s where partnership actually begins.” at.” Alisyn Malek: “I feel like the midwest has lost sight at the early stage you back the founder and trust them to adjust to the industry to get their business as the right fit. That is early stage investing, it's risky- but that is what it is supposed to be. Forcing revenue weeds out a lot of founders, and forces those with broader networks to just look elsewhere for funding, taking the biggest potential deals away from the midwest VC market.” “Yes, early stage isn’t about betting on what is working, it’s about betting on who can make it work. When we collapse ‘traction’ into ‘revenue,’ we lose the explorers and only fund the map-makers. The Midwest can’t afford that kind of risk aversion. The irony is we preach grit but often fund comfort. If we want breakout outcomes here, we have to start underwriting the messy beginning.” Anon Founder: "Biggest thing is the revenue metric. We feel that as founders. At the early stage, we need partners that believe in us and our vision to help make it real. But I’ve come to my own conclusion that our biggest challenge in the Midwest is not actually capital but knowledge. If we gave Midwest founders more knowledge and support, we could raise capital anywhere. We just don’t do a good job of teaching the game." “Completely agree! The real shortage isn’t capital, it’s context. Knowledge compounds faster than money, and we’ve underinvested in that layer. The best founders I’ve seen don’t just chase checks; they learn why capital behaves the way it does and to speak its language. If we teach the game better, the geography stops mattering. That’s the next unlock for us here”

Raising Power, Not Just Capital “The thing you want from your VC is power.” - Marc Andreessen During fundraising, a founder's primary goal is often just raising capital. However, what they need beyond the cash is the power that comes with the right name on the cap table. A cheque alone is only worth the number, while great investors can fundamentally change a business's trajectory. This quote from Marc Andreessen is a foundational truth for early-stage founders. Until your startup earns its own credibility, you borrow your VC’s. You are essentially taking out a "brand bridge loan." That power translates directly into execution and growth: Access: Power to get in the room with top-tier customers and industry partners. Talent: Power to attract world-class talent who are otherwise hesitant to join a pre-seed company. Credibility: Power to be taken seriously by the market, press, and future investors before your product is fully proven. Scale: Power to raise your next, larger round with confidence. The best firms offer far more than a term sheet. They give you influence and scale. Choose your investors wisely. You are not just picking money, you are picking your biggest advocate to open the doors into game-changing conversations. Credit Jimmy Acton

Many founders hear a VC say they invest in pre-seed and assume it means, “We fund any early idea.” But that’s not quite true. A founder has a deck. Maybe a prototype. Maybe even a few hundred people on a waitlist. The founder starts reaching out to “pre-seed” investors. Most don’t respond. The few who do say, “You’re a bit early for us.” That leaves founders in a strange loop. They are not sure whether to keep pitching or just bootstrap until they have something “investable.” Here’s the truth: The term pre-seed has evolved Most founders and investors mean different things when they say pre-seed. For many founders, pre-seed means idea stage. For most VCs, pre-seed means some validation, a working MVP, and early market proof. Here’s what most VCs actually look for when they say they invest at pre-seed: 1. A validated problem, not just an idea. Investors want to see that you’ve done the groundwork. Customer discovery, feedback, and proof that the pain point exists. 2. Some form of product or prototype. Even if it’s a simple MVP, they want to see that you can execute, not just imagine. 3. Early market signals. This could be waitlists, pilot users, beta feedback, or small-scale traction. They’re looking for movement, not perfection. 4. A credible founding team. At this stage, the bet is mostly on the founder. Investors back teams that can learn quickly, adapt, and deliver. So when a VC says “we invest in pre-seed,” they mean they are comfortable with early risk not blind risk. Pre-seed doesn’t mean “pre-work.” It means “pre-scale.” The difference lies in evidence of potential not the absence of progress. Pre-seed investors are betting on conviction, execution, and potential long before certainty. And very few funds actually operate there. Because the math is brutal You’re writing $100k–$300k cheques into companies that might not have product-market fit for years, hoping one becomes the 100x outlier. So for founders, the takeaway is simple: 1) Understand what “pre-seed” means to the investor you’re approaching. 2) Show validation, not perfection. 3) And if you can, build enough momentum to make fundraising a choice, not a lifeline. At the end of the day, pre-seed investing is about judgment, trust, and potential. If you’re a founder, the goal isn’t just to raise money. It's to demonstrate progress, learn fast, and prove that your idea can grow. Approach fundraising with clarity: know what stage you’re at, show evidence that matters, and focus on building momentum. Do this, and you won’t just be chasing capital. You’ll be shaping a startup that investors actually want to bet on.

3 red flags that are killing your fundraise according to a $100M VC fund. Warning signs that Juan Carlos Pacheco and IDEA Fund Partners screen for in the first conversation: • Arrogance (kills partnership) • Weak command of numbers (signals chaos) • Saying "no competition" (shows market naivety) Here’s how to avoid them to start showing up as a credible, coachable operator that investors actually want to partner with. #1 Arrogance Juan Carlos said it plainly: "If you're a jerk, that's a very quick red flag. Because it's a partnership when you invest." This isn't about being nice for the sake of being nice. It's about what arrogance signals. If you dismiss questions, you'll dismiss your customers If you can't take feedback in a pitch, you won't take it from your board. .  If you think you know everything, you won't adapt when the market shifts. Investors are buying into years of partnership. Board meetings. Hard conversations. Pivots. Bad quarters. If you're arrogant now, you'll be impossible later. #2 Weak command of your numbers Juan Carlos said: "If you can't speak with some intelligence about revenue, burn rate, how you're gonna use the capital... that's a huge red flag." Weak grasp of numbers signal operational chaos. Vague on how you'll use capital? ↳ You'll waste it. Don't know your burn rate? ↳ You're guessing at runway. Can't explain how you arrived at your valuation? ↳ You don't understand your business model. Investors aren't expecting perfect projections. They know things will change. But they need to know you're running your business with discipline. That you're making data-driven decisions. That you can be trusted with their capital. If you're fuzzy on the numbers now, you'll be reckless with their money later. #3 "We have no competition" This one kills more deals than founders realize. Juan Carlos said: "Competition is typically a good thing. It shows there's a market there." Here's what "no competition" actually tells an investor: Either you haven't done your homework, or there's no market and customers don't care enough to pay. And if there *is* competition and you just don't see it? You're naive. You're not paying attention. You don't understand your landscape. Juan Carlos used a sports analogy: "If you're going into a tournament, you scout your opponents. You see what they're strong at. You see what you're strong at. And you adapt." Competitors aren't threats. They're validation. They prove there's a market. They show you what works and what doesn't. They force you to get sharper. If you can't articulate your competition and your edge, you're not ready. At the early-stage, there is uncertainty and risk.  Investors don’t expect flawlessness. They do expect coachability, self-awareness, and market intelligence. Know your numbers cold, stay humble, and study your competition. Do that, and you’re already ahead of most pitches.

The right VCs are out there, you just need to find the ones who really get you. As a founder, I quickly realized not every VC is the right fit. Most didn’t pass because of geography, not because my unit economics were off. And that’s okay. It just meant I needed to focus on the investors who could actually help. Here’s who wrote checks and moved things forward: → Angels who’d already invested cross-border and understood the game → Ex-founders who cared about CAC:LTV, not your passport → Operators who knew global GTM and didn’t need a Bay Area address These investors moved fast. Smaller checks, yes, but wired in weeks, not quarters, and opened doors institutional funds never would. You don’t need 100 “thesis-fit” VCs to say yes. You need 10 believers who got it, and they changed everything. My simple advice: Qualify investors as much as they qualify you. Look for those with cross-border experience, ask about timelines upfront, and focus on the people who can actually help you grow. The right investors don’t just fund you, they open doors, share knowledge, and believe in your vision, no matter where you’re from. How do you figure out if an investor is worth your time? #funding #founderlesson #startup #globalvc #vc

Startup fundraising never gets easier. You've done this before. You know the drill. But are you making the same mistake again? Second-time founders are time-poor. You want the capital, and you want it now. I get it. But the biggest mistake I see is prioritising speed over investor fit. A fast cheque from the wrong partner is a slow death for your vision. It's not just about the money; it's about the network, the expertise, and the shared belief in your mission - especially when you're tackling big problems like Climate Action (SDG #13). The right investor doesn't just fund your runway; they accelerate your traction. They challenge you in the right ways and open doors you didn't even know existed. They appreciate the value you add, and you appreciate theirs. Stop chasing the quickest close. Start chasing the right partner. Your next exit depends on it. My track record (77 investments, 7 exits) has taught me this: a few extra weeks of due diligence for the perfect fit is the best investment you can make. What's the one non-negotiable quality you look for in an investor? Comment below and let's exchange notes.

How VCs Determine Your Pre-Money Valuation (and What They’re Really Looking At) In my last post, I talked about what pre-money valuation means for both founders and investors and how it directly impacts ownership and control after a funding round. But the real question most founders still ask is: “How do investors actually decide what my company is worth?” VC don’t just pull numbers out of the air , they evaluate a mix of market opportunity, traction, business model, team quality, and exit potential to determine your startup’s valuation before the money comes in. In my latest Medium article, I break this down clearly from how investors think about risk to what you can do as a founder to position yourself for a higher valuation. If you’re raising or preparing for your next round, this will help you see the process from a VC’s lens. Read the full article here 👉 https://lnkd.in/dCQFuZXN #StartupValuation #VentureCapital #Fundraising #Entrepreneurship #StartupFinance

“How Many Startups Should You Back (and at What Check Size)?” This is one of the first questions new angel investors ask and one of the hardest to answer neatly. Because unlike public markets, angel investing doesn’t play by averages. You’re not building a balanced portfolio. You’re building a set of asymmetric bets, where a small number of winners often carry the rest. The challenge is that nobody knows which ones those will be. At Seraf, we often tell new angels that diversification matters more than precision. Most data suggests you need at least 20–25 companies in your portfolio before your returns start reflecting “the power law” — where one or two big outcomes offset the others that go sideways or to zero. That doesn’t mean you have to write 25 large checks. It means you have to design your portfolio with enough surface area for luck and skill to work together. A good starting framework looks something like this: If your total angel allocation is $250K, you might plan for 20–25 checks of $10–12K each. Then, if a few start showing real traction, reserve additional capital for follow-ons. Most first-time angels make two mistakes: they invest too much, too soon, in too few companies. It feels exciting at the start, but by deal #5, they’ve already tied up most of their capital. When those early picks don’t pan out, there’s no dry powder left for the outliers. Angel investing isn’t about betting bigger. It’s about betting often enough and staying disciplined long enough for the math to work in your favor. The other piece of advice I share often: check size should reflect your conviction and your portfolio design. If you’re just getting started, smaller checks let you learn faster and build pattern recognition without concentrated risk. Over time, as you understand what kind of founders, models, and markets fit your lens, your check sizes can grow with your conviction. There’s no magic number. But there is a mindset: Start broad. Stay patient. Keep reserves for the ones that truly earn it. For angels in the room — how did you decide your own target portfolio size? #AngelInvesting #VentureCapital #Seraf #Investing #Operators

Early stage founders often struggle to raise their first round and end up spending too much time chasing "investor" meetings. If you can bootstrap, that’s great. But having the right angels invest early can bring other advantages like warm introductions, customer connects, design partners, and credibility. If you’re raising from angels, start with people in your network who really know you, who have worked with you, and who trust you. At the pre-seed stage, investors are not betting on the idea. They are betting on the founder and whether you have the grit to go through the ups and downs and figure it out. Ideas will change. The market might shift. But your ability to adapt and persist is what really matters. It is hard for a stranger to see that in a 30-minute pitch. So create a list of angels who already know and trust you, and start there. Once you have traction and need capital to scale, expand the circle. I have been fortunate to have such angels. Most of them did not even spend much time on the deck or demo. They invested because they trusted me as a founder, not because they saw a billion-dollar idea in a slide. Find your angels. Then focus on the harder and more meaningful part, building what customers truly want.