"Is there any seed startup money out there?"
Lately I've been getting asked that question by want-to-be entrepreneurs as well as serial startup veterans.
I've been researching what is going on -- for my Cornell entrepreneurship class and for a startup I'm coaching.
What I've found has surprised me, and been encouraging.
I'll share my findings with you, in hopes that that will be useful to your startups plans.
IS THERE SEED STARTUP MONEY OUT ANYWHERE?
I'll focus on the US startup market, with a few scattered comments about other areas of the world.
- It is buried. The mega giant rounds of follow-on fundings have cast a huge shadow that covers the traditional, tiny seed rounds. Billions of dollars in each deal get the blogger headlines, while your tiny seed round in thousands of dollars gets nil attention. Thus readers are lead to believe there is no more seed round money available.
- Waiting works, but. In the hotbeds of startups -- Silicon Valley and lately New York City -- there are so many fresh entrepreneurs with a lot fewer venture capital sources that the established VCs are able to wait for your startup to "prove it"or "get traction" in the form of millions of followers or dollars of sales. That's a statistical fact, yet it is not one hundred percent the case: I've found the stats show a lot of venture capital firms are doing small -- under $1 million -- seed rounds.
- Opportunity beckons. The move of venture cash to mega rounds opens the door to fresh venture firms and angels. The latter have become more organized, such as angellist.co (who say they did $100 million in deals in 2014) and a growing number in New York City. And I found a lot of fresh VC firms arriving in U.S. cities where they are are focused on the small(er) seed round deals. In three hours of online research I found more dozens of such new startup venture firms in Silicon Valley and its surrounding region. And I found more in NYC. This rush to fill the gap is what you can take advantage of as an entrepreneur.
- Modest sized deals rule. Russ Garland reported in his WSJ article 1/15/2015, that "the median later-stage financing [in 2014] was $13 million". That means the non-mega size deals still are what most venture investors are doing. That should be an encouragement to you.
- Easy to find. Try doing a search for "Seed" rounds on the Crunchbase site in Leaderboard (try SEED DEALS) and I bet you'll be surprised at the number of seed deals being done, and by whom. This morning I found 1,848 seed deals done in 2014 in various geographies. So from a professor to you, "Do your homework and you'll become a realist -- and be encouraged."
- It depends. In the less hot non-US startup markets you will find seed money in less organized sources, often from wealthy individuals and their friends. Developing countries are one example, as are the intensely social countries in Europe. Or you may be in the mountains in a small town in the U.S. History and my experience has revealed that many small business owners are active and capable seed investors. They often can be very helpful as well as supply cash to budding entrepreneurs.
- Have you got WOW!? Boring does not get seed money. You have to be exciting. That means something other than shocking or wild. It means your idea for your startup has to be a good idea -- meaning it is well planned and has supporting facts for how it could become successful and large. If you are getting turned down and not able to find seed money, it might be due to the weakness of your idea. Listen and ask "Why did you say 'No'?" then return home and start to change your idea.
- Do you really want seed money? In the past week I've watched entrepreneurial tv shows where founders turned down all offers from angels. And I've listened to a serial entrepreneur clearly state his limits for a deal with seed round investors, meaning what offers he would turn down. Yes, seed money is the most expensive round of startup financing. It can cost you half your startup ownership, but it does not have to. If you create a story that has WOW! and get multiple seed investors competing to invest, then you can greatly reduce the cost of capital for your seed round, hopefully to a level acceptable to you.
BOTTOM LINE: Facts destroy fiction. There actually is a lot of seed round money out there, eagerly searching for startups to invest in. Your job is to plan a campaign to get it. Search and you'll find multiple sources. Investigate each source, find out which person you want to live with for the next half decade. Then line up three to six and go for it. That's how serial entrepreneurs do it, it's part of their unfair advantage. You can do it too!
I wish you The Best on your Adventure!