Seed funding is just the beginning, but for some startups it’s becoming an end.
By Ed Sim, contributor
“No Man’s Land” is traditionally known as the area between two trenches on a battlefield. Increasingly I am seeing many seed-funded startups get caught in “No Man’s Land” between the seed round and a true Series A round led by a venture capitalist.
This can happen for many reasons, including not raising enough capital in the seed round to begin with or not getting your product out the door. So what does an entrepreneur do when caught in this predicament?
Many try to do an additional seed round or add-on to the prior round. While not a bad idea, this is rarely successful because many seed-funded startups have way too many investors who are more apt to write off the investment then to bridge more seed money. Moreover, many angel investors would rather invest in that shiny new car or first seed round then add more capital to a used car or startup that did not “get there” on its first seed financing.
Smarter entrepreneurs are increasingly doing two things to make sure they don’t caught in “No Man’s Land.” First, rather than getting 20 great names as seed investors, they are making sure to get at least 3/4 or more of the round invested by a couple institutional seed folks that may have deeper pockets and more ownership in the startup to really care about what happens in the future. Second, the smarter entrepreneurs are really thinking carefully about what milestones need to be hit to raise that first Series A round and work backwards to determine how much financing they need to get there. While not an exact science, it is imperative to think like this as you don’t want to be one of the many seed-funded companies that will linger in “No Man’s Land.”
Ed Sim is founder of BOLDstart Ventures and co-founder of Dawntreader Ventures.