
Understand seed round dynamics in Silicon Valley - massimosgrelli
https://thevalley.substack.com/p/understand-seed-rounds-dynamics-in
======
idlewords
Almost all these guides are written from the viewpoint of investors. Here's a
brief one from the viewpoint of the person seeking funding.

You are selling a product to a single customer (or small group of them). That
product is an investor story that can sell for hundreds of thousands or even
millions of dollars if you tell it ably enough, so it's worth putting in the
time in to tell it well.

If necessary, you can even write a little toy website, and entice people to
sign up for it, in the service of that story. If you can get _yourself_ to
believe in the story, you will be all the more persuasive in convincing that
key customer.

But never forget that your primary focus is that customer—your investor. Learn
their interests, learn to speak their language (perhaps by reading posts like
the parent), learn how to flatter their sense of self until they feel like a
genius visionary for finding you.

Startup investing is a luxury lifestyle product for the very rich. The art of
selling that product well is pretending that the transaction is something
different than what it is.

~~~
simonebrunozzi
The author is both a former entrepreneur (Sysdig) and a current investor, but
I agree with you that the viewpoint is more investor-centric.

Your suggestions are interesting, but I'd rather focus on the real customer,
and have the numbers speak for themselves, rather than simply perfecting the
art of raising money.

I've founded startups in the past, raised money, and also invested both as
angel investor and as a founding member of a micro-VC fund (and currently
operating partner at a large VC fund, but not too relevant here).

In my personal experience, building a strong company most often trumps a
founder's ability to play smoke and mirrors in front of an investor.

~~~
idlewords
Most funded startups don't end in a strong company, but all (by definition)
are successful at persuading someone to write a check. The rational thing to
do if you want the investment is to optimize for the storytelling, which is a
factor of 10x or more more effective than the notional business.

~~~
barry-cotter
This is only true of getting the investment is your terminal goal. If it’s
just a proximate goal on the way to actually building a successful company,
getting stinking rich or many other things that’s not true. If the investment
is an end you’re right. If it’s a means to an end...

------
jariel
This is a good articulation of the modern view of SV captial, but it is
somewhat problematic.

In a nutshell, 'Round A' is now a form of scaling money. Early, but
essentially: you need to build a product that the market really loves, before
you get any substantial money.

It would seem that VC is really de-risked themselves, obviously to their
advantage. This is somewhat the natural equilibrium in a world where it's easy
to start _some_ kind of companies with little effort.

However, there are always going to be a lot of initiatives that require some
capital to make it work. This is of course, very dangerous territory for VC to
play in (i.e. before Product-Market-Fit) but then, they do have 'Venture' in
their titles.

It's to the point wherein we could start to consider Round B and later firms
merely a slightly different form of Private Equity.

Is anything really that important going to be 'productised' for $500K-1M i.e.
on seed money?

And really, it's interesting in that, if a company does actually have good
product market fit ... traditional VC terms might seem a little expensive.

~~~
vikramkr
That doesnt jive with the string of spectacular silicon valley blowups
recently. Hype seems to be just as good a substitute as product market fit.
And it seems that derisking unit economics to show you can be profitable
doesnt matter at this point if you've got a bunch of "growth"

~~~
jariel
For example?

Having massive customer traction and 'blow up growth' is a valid form of
customer interest, what matters is the post-blow up economices.

Uber, WeWork etc. will all make money for investors in the long run.

The concern is that there is zero real R&D or product development spending.

~~~
Swizec
I work in early stage product startups.

What R&D do you need? CRUD is solved, hosting is solved, UX is solved, scaling
is solved, marketing is solved ...

Everything to do with web and mobile is very solved at this point. Most
problems come from tripping over ourselves and cobbling things together to fit
new domains.

All real hard R&D happens inside faang these days. At least for web/mobile
consumer stuff.

~~~
willcipriano
>What R&D do you need? CRUD is solved, hosting is solved, UX is solved,
scaling is solved, marketing is solved ...

If you don't need R&D, doesn't that mean your competitor also doesn't need
R&D? Where's the moat?

~~~
jariel
There are many moats to businesses, often they are not dervied from tech. Most
monopolies are operationally incumbent. Amazon (just the retail part) doesn't
have any truly special tech, but reams of know how and operational competence
with scale.

------
einarvollset
“Ten years ago, the Seed round was a single event, and companies ended up
raising a few hundred thousand dollars from angel investors”

Well.. 10 years ago there was no “seed” rounds. Airbnb raised a $600k series A
right before demo day in ‘09. That round got rebranded as a seed round later.

------
ncmncm
Nobody involved in venture capital has incentive to tell the truth.

In a clear majority of cases, a startup closing its doors after two years is
not considered a failure by the VC fund. The startup successfully _spent the
money_ the VC firm was contractually obligated to invest, may have employed
the VC's choices of officers for a significant period (providing them income
and experience), maybe purchased a great deal of tech from suppliers the VC
officers are themselves invested in, and may have left valuable assets that
could be snapped up at auction.

The biggest problem a VC firm has is the five billion dollars of others' money
they have to "place" in only 30/60/90 days. What happens _after_ placement is
much less their problem. They know most of their placements will be duds, but
they and the actual investors knew that up front. Once the money is "placed",
though, much of it can be siphoned off for the benefit of the VCs' cronies or
one or other non-dud. Maybe, after collapse, a non-dud or non-startup can buy
up assets of a dud for pennies on the dollar, and extract something usable,
like patents or equipment. Sure, the investor lost that money, but _somebody_
got it, and _somebody_ ended up with what the money bought. Just not, often,
the founders.

None of this is good for most people who do a startup, unless they happen to
be chosen as a non-dud. The chosen duds are valuable for money laundering,
which few startup principals really meant to sign up to be. Although some did.

------
cjblomqvist
The thing that confuses me is, how can you have great metrics (needed for Seed
rounds) without already having product market fit? If you have great metrics,
then are you not already a scaleup just waiting for some money to do the
scaling? Then you don't need to experiment anymore because you already know
what makes your metrics work?

------
hummel
The dynamic is very simple. It's called plutocracy, and it's as old as the
Roman Empire. If you're my friend or I know you, you get funding, your
business model or your metrics are not relevant. That's the excuse to exclude
the other 99% and in this case you and your project.

------
Hnrobert42
I stopped reading at the first use of emojis. It may be harsh, but I am not a
3-year-old. I don’t need a picture book, so I am clearly not the target
audience.

~~~
RhodesianHunter
Why do you feel that characters that together compose words are adult, while
characters that form an image conveying human emotion are not?

Is a laughing emoji not the most efficient way to convey that you're joking or
think something is funny?

~~~
ta1234567890
Agreed. There are in fact many languages (e.g. Mandarin and Japanese) that use
symbols, in their written form, to represent concepts instead of letters, and
some of those symbols were originally pictures, just like emojis.

The cool thing about emojis is that not only they can represent whole concepts
in one character, but a lot of them are almost universal across languages and
cultures. Pretty much anyone in the world understands an emoji of a laughing
face.

