RSS at Feed BurnerVC Turning to Seed Capital
Business 2.0 has a brief write-up about how some VC firms are doing seed stage funding and, in turn, investing smaller amounts of money compared to their usual investments of millions of dollars.
The article is not entirely accurate in that many VC firms do early stage investments. It is correct in that they generally stay away from the seed stage since so little money is required. According to the VC’s, it is not usually worth their time to invest in companies that are not looking to raise at least a million dollars or more (and most like to stay above the $3 million range). They have so much money to invest, it is not worth the time to do due diligence and the other work required to make an investment or else thye would never be able to invest their entire portfolio.
The article mentions how Y Incubator is investing amounts of $15,000-$20,000 and is focused on software companies. In exchange, they expect anywhere from 2-6% of your company, so don’t expect to get funding from them if you value your company at a million or more. Thsi is true seed stage funding.
First Round Capital is also mentioned even though they are not focused exclusively on seed stage investments. They invest in all types of early-stage funding and are interested in investing $100,000 and more.
Finally, Charles River Ventures is mentioned since they provide companies with a debt option, meaning the company does not give up equity. They offer a loan between $100,000 and $500,000. For this, the debt will be converted into equity at the first round of funding. But the equity options means you do not need to negotiate valuation at this point. This is a fairly interesting strategy since a lot of VC’s have to compete to get in on the first round of some very promising companies. Michael Arrington talked about Charles River Ventures back in November and expanded on what they do. He explains that the debt is converted into equity at a discount to what the first round of investors are paying.