Staying The Course

There’s been a lot written lately about VC seed programs and some of the issues they present for entrepreneurs.  Most notably, Chris Dixon has written a number of excellent posts on the topic.  See here and here.

We’ve approached seed investing at Spark a bit differently, and we think it helps alleviate some of the concerns Chris and others have raised.

The basic premise of Start@Spark is that we want companies who ‘start’ at Spark to 'finish’ at Spark.

This first principle is the key driver of how we think about seed investing, and it has a number of very important implications for the firm as well as entrepreneurs:

1) We approach seed investments with the same level of scrutiny that we do all investments.

2) We take active roles in all the companies we seed.

3) We go into seed investments expecting to fund companies in subsequent rounds.

4) We are flexible in how we structure seed investments as well as subsequent rounds of financing to not disadvantage the entrepreneur.

This ultimately results in only a handful of seed investments to which we bring everything Spark has to bear.  While we may be giving up the option value of having many small seed investments from which to cherry pick, we in turn gain a much closer relationship with the companies that we do seed which goes a long way towards ensuring that they get subsequent financing.

So why do we do seed investments?  Fred Wilson wrote an excellent post recently on slow capital.  There are many benefits to taking a staged approach to investing.  It gives everyone a chance to learn, get to know each other better, understand business and capital needs more clearly, create a disciplined, milestone-based culture and generate results that help attract new investors.  And in the off-chance it becomes apparent that the business prospects are not what everyone hoped, reach the appropriate but difficult conclusions together.

There is also the macro reality that capital requirements for many web services businesses have come down precipitously.  It is important that venture firms adapt to this landscape and continue funding the best and the brightest at the earliest stages of development.

There are many advantages to taking seed money from a quality venture firm.  It just needs to be done right.