The Lean Start-Up

There is an interesting divergence in size of funding round occurring in the venture capital and angel investment landscape.  Whereas several years ago, many early-stage start-ups targeted their initial financing round in the $2-4 million range, it has become harder for early-stage companies to raise that amount.  That’s because, as Jon Callaghan at True Ventures recently stated “most VCs now want to be in either the super early (ie invest $50K-100K to buy an “option” that the deal gets hot), or buy into an already hot company with a large ($10-30mm) check. There are very few firms in the middle.”

The good news for entrepreneurs is that many early-stage companies no longer need to raise $2-4 million in a Series A financing to push their business to a proof point.  Particularly for web-based business models, early-stage companies are able to take advantage of the lowering cost of technology through cloud-based computing services, open source software, rapid product iteration, which allows for quick product feedback and very low cost customer acquisition through socially connected platforms.  To get from formation to proof of concept may require only $500K-750K for many start-ups nowadays.

It is this category of company that is ripe for seed-stage investments of the type that have been discussed in other posts (i.e., convertible note financings or lightweight preferred stock financings in the form of “Series Seed” or “Series AA” documents that have recently emerged).  I expect that we will continue to see strong fundraising activity in this category, and further developments along the lines of the Yuri Milner / Ron Conway investments in the recent class of Y Combinator start-ups , which Goodwin Procter advised on.

This post on Seed Financing, and Company Financings was authored by Daniel Green.

 
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