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November 7, 2016

[Video] Why are seed rounds so different in value? – Bobby’s Minute, ep. 47

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Ever wondered why some companies raise 100K, while others raise 2 million?

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Transcript:

Why do startups raise different seed rounds? Why are the values so different, from 100K to several million dollars? The answer is: it really depends on what you’re building and how how much money you need for it. In a previous video, I said that you need about 18 to 24 months of runway in order for the company to start growing.

So, if you have an idea that requires a lot of developers or a lot of advertising or a lot of whatever, a lot of everything, you’re going to need more money. Basically, is just that.

Let’s look at an example: Hyperloop One raised several tens, I think, of millions of dollars. That company needs a lot of research put into it, they need to hire a lot of PHDs and a lot of researchers to understand how they can build that mode of transportation. On the other hand, companies building games, like Mavenhut, might only need half a million dollars or several hundred thousand dollars, the amount we raised at Mavenhut.

Because we needed money to hire some developers, we needed some money to put into advertising, but we didn’t need a big research and development team for us to even have the minimum viable product. So, it really depends on the company. Also, it depends on the period of time when you’re raising money. If you would try to raise money right after the 2008 collapse of the economy, you’ll have had a hard time finding it, because people were scared and they did invest as much.

On the other hand, if you were trying to raise two years ago, you would have had an easier time raising money. just look at the variations that companies like Uber, AirBnB, Dropbox were raising money at and the amount of money they were raising. Obviously, they were great companies.

On the other hand, I don’t think the same companies would have been able to raise a similar amount in 2009. The other thing that I’ve found interesting: because we’re from Romania and we started the company in Iceland, we found that seed rounds in Europe are usually smaller than seed rounds in the United States. It comes to a lot of reasons, but the geographic component might also play a part in the value of the seed round. As a conclusion, different companies have different needs when it comes to raising money.

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