You should raise your seed round exclusively from seed investors and angels
The benefit of raising from larger funds doesn’t outweigh the risk
I’ll make this quick and opinionated. If you’re raising a seed round, raise it from people who focus on investing in seed rounds. These are typically angel investors and seed funds. These investors are willing to take a bigger risk with less information to get an idea off the ground without any indication whether or not the idea will succeed at scale. They tend to invest with their gut. They are wonderful people.
There is another class of investors who like to make bets when the company is further along (when there’s data about growth, usage, revenue). These are also wonderful people.
To get involved earlier, a lot of these later stage focused funds have even started seed programs/micro-funds. While getting an investment from a big famous name like Kleiner Perkins, Andreessen Horowitz, Sequoia, or Greylock might sound amazingly validating, DON’T DO IT. Stay away from these opportunities during your seed. They really can only do harm when it comes to raising your next round.
If things are going well
- Many series A firms will want to invest.
- If you raised seed from a series A firm, they’ll expect to lead (which might be a great thing), but you might want someone else to lead and that could be awkward.
- If you didn’t raise seed from a series A firm, you’ll pick your lead regardless of prior commitments.
If things are going okay
- Some series A firms will want to invest.
- If you raised seed from a series A firm, they need to invest (and probably lead). If they don’t, everyone else is going to be nervous about investing and probably wont.
- If you didn’t raise seed from a series A firm, series A investors will make their own decision based on data you’re presenting and due diligence. There will be no expectations of a certain firm to lead or to invest.
If things aren’t going well
- No series A firm will want to invest, regardless who you raised money from during the seed.
To summarize, if you include a series A fund in your seed round, and they don’t want to invest in your series A, you’re fucked.
Okay, but is there any benefit of a larger investor investing in your seed? Here are a couple benefits people sometimes mention, with my rebuttal to each:
They have a lot of experience and will have great advice
Sure, they might have a ton of experience and connections, but I’d actually argue that most of their experience and advice won’t pertain as much to your stage as it would a company further along. Remember, these funds are designed to make large bets in more mature companies, so their expertise is at that stage. The advice you get from them in many cases will be drastically different than the advice you’ll be getting from seed investors.
It’s good to build a relationship early
This is true, but it doesn’t mean they need to officially invest. If you’re doing something interesting, they’re going to want to stay close and connected and helpful regardless, because if your growth accelerates, they want to be the one closest to you when it comes time to raise more money. Plus, formalizing this relationship at the seed stage can scare away other series A firms from engaging. You’ve added unnecessary complexity.
You’ll get resources of a larger established fund
These funds are designed to put $5M+ into companies, and the infrastructure they’ve built is for those companies. A company where they put the $100k–250k check isn’t going to get the resources the $5M will. And they shouldn’t. Of course this is a generalization, and I’m sure there are exceptions, but overall you’re more likely to get attention and resources from seed funds that depend on your success.
So raise an awesome seed round from awesome seed investors but stay away from the series A firms’ money until it’s time to raise a bigger round.