I have met many entrepreneurs looking to raise an initial round of funding during these challenging economic times. They are looking for an initial round of funding to get their companies going, build product, create an initial launch plan, etc. Based on their feedback and my experience working with investors I am not so sure that they are looking in the right places to find seed capital.
In my previous blog I outlines the 09 outlook for some of the high profile VC's in the Bay Area. Their commentary plus some supporting advice from my own portfolio of VC's indicate that the traditional VC's are not overwhelmingly interested in investing in seed rounds in 09. This is not to say that it is an absolute no for this round. However, they would prefer investing in companies with some "traction". Traction is defined as having a product, a web site with traffic and even some form of revenue to validate the model.
A seed round should not be confused with an A round of funding. The practical and semantic differences between these two categories are subtle and important. A traditional VC considers an A round to be the step beyond the seed round. So when you are approaching a VC you should get some clarity on what their funding strategy constraints are and what they mean by the A round of funding.
Seed round funding is also defined in terms for the amount of funding. Seed rounds are usually below 2 million and can be as low as a 1/4 million.
So where can you find sources of capital for a seed round?
There are institutions and organizations that focus on early seed round funding. The following is a list of these sources. This list is not a personal endorsement of the sources. I have used some of them and others I have not.
Tech Crunch - This is the online group that provides news and information on all kinds of technology and business activity. They run a competition that leads to a top 50 list of companies that they think will be winners. This is a great way to get your company visibility. It is not a direct funding source but can lead to visibility that then gets a seed round investor interested.
YCombinator: Partners - This group actually contradicts my previous statement about minimum investment. They provide funding of between 10 and 20K and incubate your company in their environment. This is a good way to determine if you really have something that is worthy of a seed round. I also suspect that they have connections with seed and A round investors.
Angelsoft - This is an online service that has you enter an application/business plan for review by investors. They have a pool of investors that look at your plan and indicate if they are interested. If they are interested it is great because you can start a dialogue and off you go. If not it is difficult to find out why your plan has not been well received.
National Angel Investor Forum - This organization solicits a brief overview of your business online and then arranges for a real person to contact you if they are interested. If you pass the initial screen their committee will decide if an investment is appropriate.
First Round Capital - This is a traditional VC outfit that focuses exclusively on seed round funding. They have a traditional partnership and are a well established fund.
Maples Investment - Maples is a fund that is very close to a traditional VC fund with the exception that it does not fit the traditional partner model. Mike Maples plays a big roll in determining who gets the money.
Founder Contact Group - There is a fairly well developed network of organizations that will help you raise funding for a seed round. Founder Contact Group is one. These groups are good if you need help in reaching investors and or need some help in positioning your venture and developing a pitch.
There are high net worth individuals that are also a good source of seed funding. However, they very rarely advertise their services. Some notable Silicon Valley personalities that have made serious money on their companies or on investments come to mind. Out of respect for them I will not mention their names. You either need to be "connected" or be referred to get into this circle. There are brokers that can help you locate these individuals. The brokers themselves will charge some finders fee to get an audience for your plan.
Good luck in getting your companies funded. Keep me informed of your progress.
In my previous blog I outlines the 09 outlook for some of the high profile VC's in the Bay Area. Their commentary plus some supporting advice from my own portfolio of VC's indicate that the traditional VC's are not overwhelmingly interested in investing in seed rounds in 09. This is not to say that it is an absolute no for this round. However, they would prefer investing in companies with some "traction". Traction is defined as having a product, a web site with traffic and even some form of revenue to validate the model.
A seed round should not be confused with an A round of funding. The practical and semantic differences between these two categories are subtle and important. A traditional VC considers an A round to be the step beyond the seed round. So when you are approaching a VC you should get some clarity on what their funding strategy constraints are and what they mean by the A round of funding.
Seed round funding is also defined in terms for the amount of funding. Seed rounds are usually below 2 million and can be as low as a 1/4 million.
So where can you find sources of capital for a seed round?
There are institutions and organizations that focus on early seed round funding. The following is a list of these sources. This list is not a personal endorsement of the sources. I have used some of them and others I have not.
Tech Crunch - This is the online group that provides news and information on all kinds of technology and business activity. They run a competition that leads to a top 50 list of companies that they think will be winners. This is a great way to get your company visibility. It is not a direct funding source but can lead to visibility that then gets a seed round investor interested.
YCombinator: Partners - This group actually contradicts my previous statement about minimum investment. They provide funding of between 10 and 20K and incubate your company in their environment. This is a good way to determine if you really have something that is worthy of a seed round. I also suspect that they have connections with seed and A round investors.
Angelsoft - This is an online service that has you enter an application/business plan for review by investors. They have a pool of investors that look at your plan and indicate if they are interested. If they are interested it is great because you can start a dialogue and off you go. If not it is difficult to find out why your plan has not been well received.
National Angel Investor Forum - This organization solicits a brief overview of your business online and then arranges for a real person to contact you if they are interested. If you pass the initial screen their committee will decide if an investment is appropriate.
First Round Capital - This is a traditional VC outfit that focuses exclusively on seed round funding. They have a traditional partnership and are a well established fund.
Maples Investment - Maples is a fund that is very close to a traditional VC fund with the exception that it does not fit the traditional partner model. Mike Maples plays a big roll in determining who gets the money.
Founder Contact Group - There is a fairly well developed network of organizations that will help you raise funding for a seed round. Founder Contact Group is one. These groups are good if you need help in reaching investors and or need some help in positioning your venture and developing a pitch.
There are high net worth individuals that are also a good source of seed funding. However, they very rarely advertise their services. Some notable Silicon Valley personalities that have made serious money on their companies or on investments come to mind. Out of respect for them I will not mention their names. You either need to be "connected" or be referred to get into this circle. There are brokers that can help you locate these individuals. The brokers themselves will charge some finders fee to get an audience for your plan.
Good luck in getting your companies funded. Keep me informed of your progress.
