“Seed funding has become the ‘participation award’ of startups.”
There has never been a better time to start a new company. It seems almost any good idea crossing the floor can get Seed funding; in-fact, even really bad ideas are often able to get initial funding these days. The catalyst for this change is somewhat of a cultural shift where many diverse ideologies are coming together at the same time. A few basic examples include:
- Shark Tank – The popular series began by inspiring people to pursue their dreams. Over time, many viewers have shifted their dreams to bypass the hard work of being the entrepreneur and moving straight to the seemingly cushy position of successful investor.
- Crowdfunding – Our research uncovered over 300 crowdfunding platforms active in the marketplace. I challenge you to come up with an idea that doesn’t fit into the sweet-spot for one of these fundraising engines.
- Boomer Retirement – The largest generation in history is moving into active retirement. This group is not ready to sit on the front porch swing as they begin their final descent. They want to do something new. Many are starting their own businesses; others are investing in the young whippersnappers.
- Regulatory Changes – Becoming an investor is easier than ever. Many have traditionally viewed startup investment as something only available to the upper echelon and the lifting of restrictions has opened the door for many to get that elitist feeling. In some ways, people are seeing startup investment as the classier way to buy a lottery ticket.
The current swell has people like Y Combinator‘s President, Sam Altman, saying in an interview with First Round, “seed money is so easy to raise in the current environment that founders assume they can just raise more money whenever they want.”¹ I have personally witnessed relatively quick Seed funding for concepts that a moment of intellectual pause on behalf of the new mass of investors would clearly scream that there is no path toward a return, much less the multi-X returns that serious Angels and VCs seek.
What an amazing time to start a business! Anything goes! This is great!…isn’t it?
The current startup environment reminds me of modern youth sports. The days of recognizing talent and hard work as a way to set yourself apart are diminishing. Parents and athletic clubs alike seek to shield fledgling athletes from the pain of defeat. We want every child to feel like a winner where dreams come true; even the overweight, 4’2″ video game player who doesn’t feel the need to practice beyond NBA 2k15 is convinced that he just might be the next Michael Jordan. We prop up this misplaced confidence with useless accolades like participation awards. From the outside looking in, we all know this Jordan wannabe will have to face heartbreak sooner or later, yet we allow his mental misstep to continue.
In much the same way, Seed funding has become the “participation award” of startups. For many, the reality check presents itself like a brick wall when they run out of that initial free-flowing cash and move to Series A startup funding. At that point, investors are of a different caliber. Ideas must be proven. The path to a clear and substantial return must be significant. Due Diligence is demanding. Entrepreneurs are put to the test. And, with the massive influx of companies coming off Seed stage funding, most fail to raise the capital needed to move forward.
This reality propels a new set of challenges to the serious entrepreneur seeking Series A startup funding. All of the traditional challenges remain, it’s just that there are now 4 times as many start-ups seeking that next level of funding. And, while Seed funding has exploded, the amount of money funneling into the Series A stage has remained relatively steady. This means that successfully moving forward requires more than your “A” game; it requires clear focus and the ability to target the right investors at the right time. It also means that you need to understand what these investors are looking for and come to the table prepared to pass Due Diligence.
While getting started is easier than ever, ultimate success is tougher than ever. If you are serious, I want you to succeed and here’s why. I am an Angel investor trying to wade through the explosion of startup companies seeking next level funding. In fact, every member of the FundingSage team is an Angel investor. Each of us has also been involved in multiple startup ventures. We’ve had many successes and have every intention of building on that success. We want to see great startups achieve bountifully because their success lends to our success. Serious investors like ourselves are excited to back companies with a great team, a great plan, a great strategy and a willingness to put in the sweat to make it happen. Sadly, we have found that many startups are unable to put a strategy together allowing them to prepare and target higher level funding mechanisms effectively.
That’s why we created FundingSage. If you have what it takes, we want you to be successful – your success translates to our success. This site is filled with resources and tools to help you navigate ongoing rounds of funding and target your efforts efficiently. As Seneca said, “Luck is what happens when preparation meets opportunity” – good luck.