Ask for more money, not less, for your seed round
by John Nesheim
How much money should you ask for in your seed round? Does it matter to venture capitalists, angels or other investors such as friends, family and fools?
The response from serial entrepreneurs may surprise you: "Take more money than you think you need."
Here is the reasoning for that provocative response:
- The percent ownership is the same for more or less money. Experienced entrepreneurs find $1 million costs as much as $300 thousand. I know it is weird, but that is how it works. If investors get too greedy (their cost of capital is extremely high), there will not be enough of the startup left to motivate employees and not enough to attract follow-on rounds of financing.
- Less money is less attractive to venture capitalists.Professional VCs generate wealth by putting as much cash as possible into winning startups (like yours). Ten times $1 million is better than ten times $300 thousand.
- Optimism calls for more money. Get enough money to fuel your company well past the first major milestone (e.g. proof of concept, running prototype, etc.). Entrepreneurs are always overly optimistic. Investors know that. They want you to raise the next round after, not before, completing the major milestone. it is very painful to try to find the next round of investors when your company is half pregnant.
- Less seed round money does not increase your chances of getting funded. You get money because of a great bplan, with great people, that have a great unfair competitive advantage. Begging for crumbs while holding out a tin cup and a cardboard sign is not how to get your seed round financed. Go for the gold, with confidence and boldness.
BOTTOM LINE: Experience tells the first time entrepreneur to find more, not less money. That increases your chances of success. It is a powerful addtional element to add to your unfair advantage. If you doubt it, ask a successful entrepreneur.
