Getting Seed Funding

On Thursday October 2nd, I am moderating a panel on seed funding at the Early Stage Summit here in New York. I am looking forward to the event because there are going to be a lot of really interesting companies pitching, some great keynotes, and a who’s who of VCs there (and if you are a NY area VC and you’re not going you should be.)

In thinking about what to talk about I have been thinking a bunch about the state of seed funding. More specifically, I have been thinking about the incredible difficulty of going from idea to implementation for non-trivial ideas. Seed funding is difficult everywhere, but is really difficult in New York where as compared to Silicon Valley, there are fewer cashed out entrepreneurs running around who have made money in a startup and so have a pre-disposition towards early stage investing.

This problem is exacerbated by the national later stage focus of the venture community. It used to be much easier to raise money at the seed level from professional investors. Or perhaps a better way to say it might be that series A was not defined by having a finished product and customers, and so series A really could *be* seed funding. As funds have gotten bigger they are no longer interested in these small time deals because when you are managing hundreds of millions of dollars, handing out money in $250,000 chunks is perceived as inefficient.

This state of affairs troubles me because it makes the markets more incremental and less innovative – a point which I have referenced before, and which has been recently documented in ex Cisco CTO Judy Estrin’s new book Closing The Information Gap: Reigniting the Spark of Creativity in a Global Economy.

That said, I am incredibly excited about Owen Davis’s new fund NYCSeed. NYCSeed is literally for two guys in a garage. The requirements are two techies that live in New York City, and a compelling idea. The terms are fairly simple: a convertible note for $200,000 that ultimately gives them around 10% of the company. The note converts to equity when the next round closes.

This is cool stuff, and is desperately needed by the market.

Last night I spoke to Owen, who is also giving a keynote at the Early Stage Summit, about his fund and the genesis of it. Owen, a long time New York entrepreneur, said he hopes that the fund will serve as an example of the need and the opportunity associated with early stage deals, and that his template will encourage others to create similar funds.

I certainly hope this is the case. I don’t think more money needs to go into silly me too deals but I do think that spreading more of it around into the early stage space is critical to pulling tech out of its innovation malaise, so I am very much hoping NYCSeed rocks.