Earlier today I had a debate with an investor in the startup community. He was arguing we need more angel investors that can help pre-revenue entrepreneurs put together $1 million investment rounds. I was arguing that the $700k – $1M seed rounds aren’t a good idea because the entrepreneur almost always spends all the money without making enough progress to raise the next round at a higher valuation leading to even more dilution. Raising a $1M seed round can work, but when entrepreneurs have money in the bank and believe they can raise more, the money gets spent quickly.
Instead of $1M seed rounds pre-revenue, my recommendation is for angel investors to put together small rounds in the $250k range. $250k is enough money for a small team of three people to work on finding product/market fit and building the start of a repeatable customer acquisition process over the course of 18-24 months. If product/market fit hasn’t been found at the end of that time period, it’s a good time to evaluate continuing forward with the startup or shutting it down.
Entrepreneurs would do well to think about smaller seed rounds and the benefits of a leaner team, less dilution, and more time to figure how to stay in the game long enough to win.
What else? What are your thoughts on $250k seed rounds?