VC Seed Funding is Dead, Long Live VC Seed Funding!

A few years ago it became fashionable for large VC’s to do seed funding. With open source software (LAMP stack) and cloud computing infrastructure it just wasn’t that expensive to get your company going and founders just wanted to raise less money. Some larger VCs felt they were being “scooped” by some younger, nimbler and smaller VCs. So they set up seed programs that allowed for rapid decisions for $500k or less, often done as convertible debt for both speed and cost reasons. There are multiple firms that did this.

I was an early cynic. I told entrepreneurs that it was a bit of a Faustian bargain. If the large VC doesn’t agree to do your A round then you’re in a bit of trouble. Why? Because as a potential A round investor I’m thinking to myself, “if the large VC seed investor has been in the company for 9 months and isn’t leading the round then something must be wrong. Surely they have more information than I do.” And I think this line of thinking has started to become conventional wisdom as outlined in Chris Dixon’s excellent blog post saying that you need to be careful raising seed money from a large VC fund.

by Mark Suster

Full Story: http://www.bothsidesofthetable.com/2009/10/18/vc-seed-funding-is-dead-long-live-vc-seed-funding/

(Thanks to Brad Feld http://www.feld.com/wp/ for passing this along. Russ)