Fundraising · Investments

Is it bad to raise Seed financing from VCs?

Svyatoslav Dormidontov Web-developer

September 23rd, 2016

I read somewhere that it is risky to raise capital from VCs at a Seed stage as most of them follow the prey and spray model. Meaning that if you don’t have enough traction they will not reinvest and this will send negative signals to potential investors on your Series A. Look forward to everyone's comments. Thanks in advance.

Tom Duffy

September 23rd, 2016

There are VC's that invest in start ups but they need to have  proven their MVP and have revenue,solid stats and distribution. Usually seed is done with convertible debt 

Joseph Wang Chief Science Officer at Bitquant Research Laboratories

September 23rd, 2016

This isn't usually an issue because most VC's just won't invest in seed stage projects because they are much too small. VC's need to minimize the amount of work they do for an investment, and the returns from something seed stage just doesn't justify the large amount of hand holding.

The problem is that VC's don't invest their own money. So if the project gets a 10% return, they are lucky if they get 1%, and for one percent, they just can't invest in something that requires a lot of effort. Angel investors invest their own money, which means they make money from the 10% return. Also angel investors are called "angel" because invariably they are in the game for reasons other than money (in my case, it's because I want to develop fintech).

If you just look at the money part, it makes no sense to do any seed funding at all, just like if you look solely at the economic numbers, making babies is not economically profitable, but someone needs to do it or else everything falls apart.

It is risky to invest from someone that claims to be a VC at the seed stage, because at that point you really worry about what their model is. I've seen seed stage investments get offered shockingly bad terms. In some situations, it turns out that the terms were really bad because the VC had no idea what they were doing.  In other situations, it turned out that the VC did know exactly what they were doing, what they were doing was something rather nasty.

One thing that does impress me about a team is that I've seen situations were a group fresh out of college has enough common sense to know when to say no, and know that they are getting a raw deal.


Tom Duffy

September 23rd, 2016

what is your budget and how big is the market for your solution ?

Rod Abbamonte Co Founder at STARTREK / @startupHunter / @startupWay / @CoFounderFound / @GOcapital / @startupClub / @lastminute

September 23rd, 2016

It's not bad but normally VC's are not prepared and have not expertise for a seed stage.

Jim Jordan Investor / Board Member at Sparx Hockey

September 23rd, 2016

The answer is... "it depends" on the specific facts and circumstances.  There are many true "seed funds"  - andreessen horowitz, Kaepha Partners, Accomplice etc.  They often invest $50k to $500k to prove out a concept.  If they are happy, they will incrementally invest and help bring in new funding.  If they are not, they won't....simply put... be careful who you get into bed with. 

Alyssa Martina Founder and CEO, Memloom, a digital storytelling company; Brand & Nonprofit Storyteller; Tech & Media Entrepreneur

September 23rd, 2016

It’s not impossible but often unlikely unless the entrepreneur has had several previously successful startups. There can be some downsides to it so proceed carefully. There’s  a reason why VCs wait until a later round to invest.

Steve King COO, CTO, Netswitch Technology Management

September 23rd, 2016

It's not only bad, it's impossible. VCs don't do seed.