Should I take seed money from a venture capital firm or angels?

April 9th, 2008

More and more entrepreneurs are asking me if they should raise seed money from VCs or angels. The honest, and perhaps surprising, answer is that I’d lean toward taking it from angels. Here’s why:
• once you take venture money, the clock is ticking. While some VCs, including ours, are patient and thoughtful, many others are not. They want to see progress immediately and daily. It’s not a good time to be having existential debates…but that’s often a big part of what gets done right after raising seed money.
• there’s a bit of an inherent trap. If you make some progress but not a ton of progress, the seed VC may decline to fund the A round (trust me, they aren’t sweating losing the $250,000 they gave you). So now you have to go out and try to raise that money from another VC. But let me ask: if you were a VC, would you fund a business that a currently invested VC was saying ‘no’ to?
• one of the great things about good VCs are the support, advice and connections that they give you. And while we all hate preparing for and sitting through the proctology exams that are also known as Board meetings, those exercises are actually extremely valuable brainstorming sessions. But, when a VC invests as a seed investor they typically don’t sit on the Board. And if they aren’t on the Board, they aren’t thinking about you as much. And if they aren’t thinking about you as much, you’re not getting the value you signed up for.
You might read this list and determine that your circumstances are such that it still makes sense to take your seed round from a VC. Many companies do & it’s a legitimate option. It’s also great to see VCs wading into this end of the pool after a period in the middle of the decade where early stage funds had practically dried up altogether.

Let me know your thoughts.

Entry Filed under: Life as a Start Up