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January 30, 2017

Don't Raise Money From VC In First Round Seed Stage

In a Linkedin article, one of India's most active angel investor Sanjay Mehta advises startups not to raise seed funding from VCs for the following reasons:
  • There is reluctance among new investors at Series A if the VC at seed stage doesn't participate. " For start-up if the VC firm decides not to write the second cheque Series A then it's sure shot curtains for that business as NO other VC firm in the town is going to write that second cheque.."
  • Startups can have "enough & more expertise, face time and mentoring" from the lead angel investor as "Seed stage first cheque funded companies will never be a priority for a VC firm."
  • VCs are more willing to write off investments than angel investors as "losing money is accepted norm for the VC firm with the seed stage first cheque invested companies". ".. VCs are playing a high-stakes all-or-nothing game."
  • Raising a seed round from VCs denies entrepreneurs "the only opportunity for entrepreneurs to bring in marquee names or valuable experts on the cap table."
  • Raising large sums of capital early from VCs "creates a pressure cooker type situation for entrepreneur and forces them to throw money to problems. VC capital always comes with non negotiable deadline to deliver. In comparison, the angel investor rounds are more measured, it's optimum use of capital and focused approach to experimentation and more flexibly to adapt the learning as it's not a stoned deadline."
Click here to read the entire article.

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