VC Signaling is an issue I’ve seen come up a lot over the last few months (mainly from Super Angel types). For those that are unaware, VC Signaling is where a big VC invests in a startup’s seed round and doesn’t re-up for the next round. That sends a bad “signal” to the rest of the market and makes it significantly harder to raise the next round.
Brad Feld just blogged about his discussions with a big VC and their strategy with seed investments. Several folks on Twitter piped in including Chris Dixon and Eric Paley of Founder Collective and Shafqat Islam of NewsCred (StatSheet is a customer)…
http://twitter.com/cdixon/status/23230042712
http://twitter.com/epaley/status/23234844157
http://twitter.com/cdixon/status/23231620110
http://twitter.com/shafqatislam/status/23231846756
http://twitter.com/shafqatislam/status/23232575526
http://twitter.com/shafqatislam/status/23232635562
http://twitter.com/cdixon/status/23232804794
StatSheet’s lead investor for our seed round was a big VC (Valhalla) so I’ve thought about this issue a lot and I completely agree with Shafqat…it is overblown.
Especially if your startup is not in Silicon Valley, NYC or Boston, your options for raising money are limited. If you can get a big VC excited in your deal and you think they will be supportive, would you rather tell them no and spend the next 12 months tin cupping it? The Super Angel phenomena is limited to a few cities in the US. If you don’t live in one of those cities, you are stuck with the Standard Angel community. Yes, Super Angels invest outside of those cities, but it isn’t as common.
It took only 3 months for StatSheet to find our lead investor, but if I would have gone the Angel route it would have taken 4 or 5 times longer and significantly more trips to Starbucks. Just not worth it. And I found a VC that is super supportive of what we are doing. Sure there is the concern that Valhalla doesn’t invest in our A round, but we agreed on very achievable milestones over the next 12 months.
There are lots of things to worry about when it comes to running a startup, but taking money from a well connected, big VC that doesn’t require I move to Silicon Valley versus trying to find a dozen Angels one by one didn’t require much analysis.
Ultimately, I think VC Signaling is a great marketing tactic for Super Angels, but for many startups (ESPECIALLY IN THE SOUTHEAST) it just isn’t a concern at the top of the list.
