Many B2B founders are not ready for an institutional seed round fundraise at the start of their journey. They are still figuring out the markets and speaking to potential customers/design partners.

Any fundraise comes with an expectation of growth post the fundraise. You are running against the time as a founder to prove product market fit. And sometimes product market fit can happen in a month and sometimes it can take more than 2 years.

As a founder when you are not yet ready for an institutional fundraise at the beginning of the journey and still want institutional level support.

We have built the Neon Incubation model just for that.

It provides you with an amount which is enough for 2-3 founders to test out their hypothesis in a market for 6 months to 1 year. And we support that with weekly calls/meetings with Neon Partners as you navigate your first 6 months of building the company.

And once you feel ready as a founder for an institutional fundraise, Neon leads a round of $1M in your company along with other VCs and angel friends of Neon. This is especially pivotal in a company when you just land your first enterprise customer and now need more money for implementation as well as scaling it to the next 10 customers.

How the Neon Incubation Model Works: The incubation model is suited for companies who are yet to realize US revenue/close their first few US customers/pilots. Under this model, Neon invests $100K for 10% equity ($1M valuation).

Follow-ons: Upon the company’s acquisition of the first enterprise customer ($50K ACV or more), Neon will lead a $1M round, investing $300K at a $7M valuation. Remaining investments will come from friends of Neon (other VCs and Angels) we introduce along the journey.

Option: Founders who need more capital upfront can also opt to receive $200K (same valuation) in the first round, followed by $200K in the follow-on round.

Why the Incubation Model: To help companies inculcate the Enterprise SaaS DNA right from their early days of partnership with Neon.

Why Team is The Strongest Factor: The biggest challenges a SaaS company can face are one/both of these – product problem (building) or sales problem. No matter how big and ready for disruption your target market may be, a startup can fail if the team is unable to either build a good product or sell the product to the right customers. Therefore, your team’s skills, background and strengths are a major parameter in evaluation.

What We look for in a team: One or more of the following qualities can go a long way

• Second-time founders or founders with extensive domain experience as a result of being serial operators in the domain.
• Experience with building for/selling in US markets is a plus.
• Strong understanding of/obsession with their ICP.
• First time founders with a unique insight of a large enterprise market in the US, dominated by incumbent software companies.

⠀How We Partner: Neon will be like your company’s GTM Co-founder.

• Weekly/fortnightly catchup calls – Discuss progress and challenges, help on GTM and/or hiring strategy.
• Introductions – Neon will facilitate introductions to portfolio companies or startups within our network, from either an advice or customer introduction PoV.
• GTM/Branding expertise – Connecting companies with our LPs who have domain expertise in SaaS marketing/Sales.

Portfolio Companies Incubated by Neon Have Made it to YC
Merlin – YC S24
Mantys – YC W23
Crux – YC W24

Apply to the Neon Fund here