Friday, January 30, 2015

Definitions of seed funding: a perspective beyond software

The inimitable Jason Calacanis has written a blog post called "Official Definitions of Seed, Series A, and Series B Rounds". I always enjoy Jason's posts and he holds a special place in my heart for declaring a war against angel groups that charge startups to pitch. But this "official" definition should really be the official definition of seed funding for software startups.

Jason says that in 2015 the stages are as follows
  • Pre-funding: You talk about your idea, you build a prototype & launch an MVP.
  • Seed Round: The funding necessary to get product traction.
  • A Round: The funding necessary to scale your product.
  • B Round: The funding necessary to get founder liquidity, build groovy headquarters, and make competitors give up (or not start in the first place). 
Yes, but ... if you're a regulated healthcare technology company you can't launch an MVP until regulators says so. If you're a certain type of science or engineering company, your pre-funding has to be grant capital from the Federal government. And many a STEM company is going to require at least A round funding before they can start any sort of sales.

Our venture fund, Long River Ventures, seed funded a company called Convergent Dental, making a product which we believe will replace the dentist drill. They sped through the prototype and regulatory process but their MVP came on the back of A Round funding. Now they're scaling with their B Round, delivering sales month after month but far away from any kind of founder liquidity that Jason says characterizes B Round.

I'm working with some truly special researchers coming out of the Center for Sustainable Materials Chemistry. Startups coming out of this center will owe their genesis to our tax dollars, through Federal government funding via the National Science Foundation. It would be brilliant if they could launch an MVP just based on this money and SBIR funding. But depending upon the particular spinout (and there are three so far and two in the works) it's going to take them an A round before they get any kind of product traction. With my colleagues at ecosVC, we're helping them move forward as fast as possible, teaching them techniques for market/research iteration but science can only be pushed so fast.

Finally, the science and engineering teams that are funded by VentureWell, the organization where I serve as Senior Advisor, for the most part can't follow Jason's trajectory. They are making engineered products, about half of them medical. These students are dedicated, passionate, work cheap, come from both big name and lesser known universities, and are determined to get their products into the hands of customers. But it's a disservice to them if we tell them they can always follow the easy paths of those who I like to refer to as their slacker peers such as Snapchat and their ilk. 

VentureWell also runs the NSF I-Corps program. Using Steve Blank's Lean Launchpad program, it helps NSF funded researchers learn the customer discovery process. It pushes them as hard as possible to get to an MVP as soon as possible. But again, science can only be pushed so hard and in some industries, where a bad MVP can actually kill people, not merely crash a web browser, the path is longer and harder.
Post a Comment