The $700k seed round, as it’s currently known today, needs to die. Here’s a common scenario: entrepreneurs scrape together $50k from friends and family, build a prototype, sign three customers or LOIs that are from warm intros, use the modest progress to raise a $700k seed round, spend all the money in 12 months, still don’t have product/market fit or a repeatable customer acquisition process, and now can’t raise more money resulting in a zombie startup. This happens again and again.
Here’s a modest proposal for how to change it:
- Raise $50k to build the prototype and get the first three customers or LOIs
- Raise $250k and make it last 24 months
- Forced to make the money last longer with a smaller team acknowledging that throwing more people at it doesn’t accelerate the time it takes to figure things out (much like The Mythical Man-Month for startups)
- More time to find product/market fit and a repeatable customer acquisition process
- Lower burn rate when/if it’s time to raise more money resulting in more flexibility
- Decreased dilution since less money is raised at the same pre-money valuation
- Raise more money or continue to grow organically from a position of strength
The two main differences from the current model are that it’s planned to take twice as long and it’ll cost less than half as much each year to figure out how to make things work. This leaner, longer timeline approach increases the likelihood of startup success.
What else? What are your thoughts on death to the $700k seed round and this alternative proposal for a smaller seed round designed to last longer?