A lot has been written about seed funding. How much should you raise, from what type of investors, under what terms and conditions?
I believe the first question an entrepreneur should ask himself or herself is whether they should raise a seed round at all.
Unless you’re building semiconductors or hardcore hardware, it is no secret that the cost of starting a company and achieving market validation, the ultimate value creation milestone for startups, is trending to zero for engineer founders that can moonlight or survive three to six months with no or limited income. Dave McClure’s “Moneyball for Startups does a great job explaining this. An incorporation and simple shareholder’s agreement will cost a couple hundred bucks if you do it online and use some of he free templates. The open source software stack and its numerous development frameworks like ruby on rails are free and have sped up development cycles to the point where a common mortal can build a brand new application and release it into the wild in months. In fact, a team of two should be able to build the first version of its product or service between one to three months, depending on the complexity. Accelerators like Y Combinator, Techstars, Seedcamp and Launchbox Digital have proven this assumption over the past few years. On the hardware side, cloud services like Amazon Web Services allow startups to scale their computing, bandwidth and storage costs as their business grows, limiting the initial costs to less than $100 per month. With a first product in hand and a scale-as-you-go infrastructure, a team can then deploy and test customer fit and market adoption assumptions for free (except for a few hundred $$ Adwords) on multiple platforms and channels including Social (Facebook, Twitter, Youtube, Gmail), Search (Google, Bing), Mobile (iPhone, iPod, Andoid, Blackberry, etc.), each with audiences of hundreds of millions or more and the emerging Business Marketplaces such as Google Apps and Salesforce’s AppExchange, to name a few. Continue reading →