June 3, 2011
The Seed Round of startup investment refers to what is generally the first round of financing that startups receive. This is the earliest that investors are able to get involved in a startup. When looking into investing in a startup that is still in a seed financing stage it is important to note that these companies are typically still in a conceptual stage.
This stage of investment carries with it a higher amount of risk than the later stages of investment because of the nature of Seed Round startups. Being in the conceptual stage, companies can provide little more than expectations and projections when wooing investors. Due to the early stage that these companies find themselves in and the lack of a reasonable valuation, investors can often get involved at a significant stake for a lower cost than a later stage investment, especially given recent trends in early stage technology investments.
Your investment will come down to not only the style of investor that you are but your perceived significance of the startup company itself. Investing in the seed round of a startup means investing in the strength and capabilities of the team and ideas.
1. Are you confident that management has what it takes to builds a sustainable startup? The startup needs to be more than simply a good idea or else it will flounder.
2. Is management flexible enough to alter how they are going to be successful? A sure sign of impending death for a startup is a leader or team who know exactly how they are going to market and how they are going to be successful. When looking at early stage startups confidence and tenacity are good, but ego and close mindedness are always going to be bad things.
3. Does management have what it takes to take their startup to the next level, more importantly do they have what it takes to attract investment at a higher level.