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Managing seed / angel to Series A

on Wed, 10/10/2012 - 14:27

Angel investors have been around for a long time. But starting 2-4 years ago, the growth in wealth of successful entrepreneurs & investors means angels are proliferating at a geometric rate.  They've also been able to become more organized, with angel groups like the Common Angels, and angel investor products like Angel List.  At the same time, classic venture firms started making small, angel/seed-stage investments. Lots of investments, in fact.

The result has been really great in some ways: There is an amazing explosion of startups that are getting a chance at building a business. I'm helping a bunch of them myself.

But there is an emerging sentient that taking seed / angel money from a VC fund is a bad idea.  There are two good articles describing how this is playing out:

My take on this:

  1. I agree with the signaling-problem analysis.  Don't take seed from a VC. You can consider a bridge note from a VC if you a) have signed term sheets, but need to act on something before you close. (Note that a small number of rounds with signed term sheets DO NOT CLOSE.  Be sure you have a Plan B if you take a bridge.)
  2. Don't go try to raise your Series A until your business is really and truly ready. I see hot startups getting contacted by good investors who are sending buying signs, but who will want another investor to be in the round. If you're not ready, and you go try to find that other investor, you may fail at this. If you do, you'll have a stink on your fundraising that may prevent you from raising a good Series A - and may cost you that first interested investor. Get your act together before you start to nip at the bait being dangled by that first investor.

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