The earlier the better...
Most VC’s typically “pass” on a deal with a line like “you’re too early for us, but let’s stay in touch as you execute your plan and hit your milestones.” Why wouldn’t they? This non-pass pass gives the VC a second opportunity to see a deal – and let’s the VC avoid the finality of declaring: “Nope, we’re not ever going to fund you.” In a business that’s all about maintaining options, the non-pass pass has become standard practice.
At First Round Capital, we can’t follow this standard practice. We prefer to see (and fund) companies early – after all, we’re not Second Round Capital. We are comfortable with “Powerpoint Risk” (ie, funding powerpoints) and are used to funding incomplete technologies, teams and business models. Our fund’s average initial investment is just under $500,000. So I found it ironic last week, when, I ended up passing on several startups using a line like “you’re too late for us – I wish I had seen you six months ago during your angel round.”
Since our inception, First Round Capital has always been focused on early-stage, seed investments. Just last week we closed a new fund. And as rumors spread that we might be raising a larger fund, we’ve already started to get more inbound requests for larger, later-stage, deals – ($2+ million funding rounds). But while our fund is larger, our focus remains the same. We plan to continue to make the same early-stage, seed investments we always have. The same initial investment size. The same investment style. And the same investment strategy.
Our average initial investment will remain around $500,000. And our investment goal remains the same – to help an entrepreneur validate, “de-risk,” or disprove his/her hypothesis…and to do so as quickly and capital efficiently as possible. The only real difference is that we won’t be raising a new venture fund annually (as we did in the past), allowing us to spend more time with our portfolio companies and looking at new deals. So in an election year where everyone seems to scrambling to embrace "CHANGE", we’re looking forward to more of the same in 2008 and beyond.
(And keep the Powerpoints coming – you can’t send them early enough!)