Managing Startups: Best Blog Posts

Chapter 45. How to Evaluate Firms for a Seed VC Syndicate

David Beisel

There are essentially two distinct basic strategies for startup entrepreneurs to raise a seed round of capital:

Subscription approach

An entrepreneur sets a structure (usually a convertible note) and recruits individual angel investors who subscribe to the round, all without a term-driving lead investor.

Term-driving investor approach

An entrepreneur finds a lead (quasi-)institutional venture investor to price and set the structure/dynamics of the round, working together to bring in additional syndicate partners (either/both other funds and individual angels).

(Sometimes the subscription approach works to include venture capital firms, but only for a very “hot” company or in a competitive environment, like at a Y-combinator demo day.)

Reaching a decision between the above two options is a post for another day, but when entrepreneurs select the latter route, they are then faced with the daunting task of navigating the murky waters of the myriad of firms who at least market themselves as active seed venture capital investors. While we’ve seen an increasing amount of information and transparency about the players in this market, it can be challenging to embark on a set of meetings raising seed venture capital without a structure to think about potential funders. Every firm, whether it follows a dedicated seed venture strategy or a full life-cycle approach or somewhere in between, has a set of qualities that affect how ...