"I believe the goal of seed funding is to validate (or disprove) an entrepreneur’s hypothesis + “de-risk” the opportunity."
Great graph and post on Redeye VC on the value of bootstrapping + "failing cheaper" ouch : "I believe that the goal of seed funding is to validate (or disprove) an entrepreneur’s hypothesis, and thereby “de-risk” the opportunity. Early stage companies should raise enough money to allow them to iterate - as long as their initial hypothesis is still valid and they are making demonstrable progress towards lowering risk. Today’s model of failure is far more capital efficient in allowing entrepreneurs and their investors to do this than the old model. Companies used to waste millions of dollars of VC money – and entrepreneurs used to waste years of their lives – working on a failed hypothesis. Now, the cycle is much shorter."
Keyword there is "de-risking". Most ideas stay ideas. It is harder to execute. And even harder to scale. The real time feedback you get from actual shipping is invaluable in deciding "what next" whatever the structure around it/you. Expansionary capital needs to be able to value (rather than devalue) the "de-risk" factor ("how come there isn't more revenue?") : Less sophisticated investors (and entrepreneurs) prefer to be in a state of "continual (idea) build" - Namely planning the next new thing, and never executing. Within a larger business this is corporate strategy where you write plans, and identify deals that 95% of time don't happen. Anyway, the de-risk factor is important with the cheaper costs to get web prototypes launched; But ultimately an interim stage till the business consumes real resources, starts to produce and consume real financials, hoping to come out the other side with a winning (exitable) story.
Vincent: Okay, look, here's the deal. Man, you were gonna drive me around tonight, never be the wiser, but El Gordo got in front of a window, did his high dive, we're into Plan B. Still breathing? Now we gotta make the best of it, improvise, adapt to the environment, Darwin, shit happens, I Ching, whatever man, we gotta roll with it.
Keyword there is "de-risking". Most ideas stay ideas. It is harder to execute. And even harder to scale. The real time feedback you get from actual shipping is invaluable in deciding "what next" whatever the structure around it/you. Expansionary capital needs to be able to value (rather than devalue) the "de-risk" factor ("how come there isn't more revenue?") : Less sophisticated investors (and entrepreneurs) prefer to be in a state of "continual (idea) build" - Namely planning the next new thing, and never executing. Within a larger business this is corporate strategy where you write plans, and identify deals that 95% of time don't happen. Anyway, the de-risk factor is important with the cheaper costs to get web prototypes launched; But ultimately an interim stage till the business consumes real resources, starts to produce and consume real financials, hoping to come out the other side with a winning (exitable) story.
Vincent: Okay, look, here's the deal. Man, you were gonna drive me around tonight, never be the wiser, but El Gordo got in front of a window, did his high dive, we're into Plan B. Still breathing? Now we gotta make the best of it, improvise, adapt to the environment, Darwin, shit happens, I Ching, whatever man, we gotta roll with it.
posted by redbarren at 10:36 AM
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