Seed and Early Stage Investing

At a recent Canadian Venture Capital Association (CVCA) conference, a panel I moderated debated "Seed and Early Stage Investing". The panel brought together perspectives from active and highly regarded US, Europe, and Canadian venture capital firms. While the panel did not agree on all topics, here are the common themes from debate.

When considering Seed and Early Stage Investing, institutional investors;

1. Target to acquire at least 20%-25% equity in the target company, so as to survive dilution of follow on rounds.

2. Immediately after the close of the seed/early stage investment round, begin to position the target company for a follow on round of investment with appropriate VC's. As they say "raise money long before you desperately need it".

3. The strength of the management team is as important as the strength of the IP. Prior to the seed/early stage round closure, an investor must ensure expectations and logic for future management team makeup change are clear. Changing the CEO for example is a 3 to 6 month journey from recruit to effective. A very tough thing to do while building value, positioning for follow on rounds, etc."

4. Strategically considering the most probable and profitable "exit" paths for a given target investment begins prior to the seed/early stage round and throughout the target companies life cycle. Management must be able to build real value in the company which enhances the likely hood of a profitable exit. Strategic decisions made throughout the companies life cycle must always consider which decision enhances the companies value to potential acquirers.

What do you think of these themes ?
Agree ?
Disagree?
Why ?

Dan MacDonald