The new market for seed financings

I was on a panel this morning at the Cambridge Innovation Center (many thanks Ben Hron and Rick Lucash) with NEVCA’s C.A. Webb and NextView’s David Beisel.

A lot of entrepreneurs had questions about the new JOBS Bill and the crowd-sourcing opportunities it may create for seed financings.

The discussion made me realize again that the early-stage funding space has evolved quite a bit in just a few years.  Entrepreneurs have a lot more choices:

  • A Traditional VC, a VC 2.0 firm like Kepha, a super angel group, a micro-VC, individual angels, or crowd-sourced funding?
  • Convertible notes where financiers are buying a low-commitment option, or a priced equity round where people commit to roll up their sleeves, become emotionally attached to a start-up, and help make it work?
  • A senior partner who is politically powerful internally at the VC firm, or a junior Associate who is a domain expert?
  • One major investor or a whole large group?

In the end, I think all of this choice makes for a more lively and vibrant start-up funding system.  It’s all good.  But, it also makes for more stark trade-offs for the entrepreneur.

Buyer beware.

I do think the following: 90% of start-ups should NOT raise VC money.  They may be good business ideas, but may not achieve large potential exits that VCs need for their investors.  As the old adage goes, do you want to own a bigger piece of a peach or a smaller piece of a watermelon?

Most ideas are in markets that cannot be large quickly.  Many ideas are better off financed by less-dilutive friends and family money or bootstrapped through organic cash flow.

The entrepreneur, IMO, has to be very honest about what kind of potential his/her business idea has.  Otherwise, you may be wasting your time with VCs and educating a lot of people about your idea for naught.

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