This is the track for a lot of startups. Going after a small investment to accomplish some key milestones allows entrepreneurs to build some value in the company and positively affect the overallvaluation. In the past, this was a great concept and, even in the current economy, may be a great strategy. It also helps when the amount of money required is at a level that is difficult to attract.
For example, prior to a couple of weeks ago, the upper end of where Angels would tread was about $1.5M and the smallest amount most VC’s were interested was $5M although I did hear that is was around $7M in Silicon Valley. Companies needing $2.5M or $3M were having a difficult time. One of the recommendations was to re-look at the requirements to see if there was a way to raise $500K – $750K and get some traction and plan for a higher institutional raise in the future.
For many, this was a great plan. However in today’s environment, you just can’t plan that the next round will be available when you need it. The current economy suggests real financial creativity where you plan on a smaller round and then combine it with a “Bootstrapping” mentality to get to self sustainability.
Here’s another slide from Sequoia that makes a lot of sense:
Now it seems to me that these make good business sense in good or bad times.