Don’t Kill Your Startup with the Wrong Funding Round

Bianca Dellepiane (LION)

By  CrowdFundBeat Guest Editor,

We all know not to raise capital unless it is strictly necessary.  But, do you know what could happen if you need money and you go for the wrong funding round?

Let’s start with a brief description of the different rounds of funding available to a startup:

At the beginning, startup founders who cannot bootstrap, ask  for capital to the fondly called “friends, family and fools”.

According to the crowdfunding platform Fundable, friends and family are the major funding source for all entrepreneurs. Last year they invested on average$23,000 per startup for a total of over $60 billion in new ventures.

Successful serial entrepreneur JAY ADELSON in this video, clearly explains the other “rounds” of funding.  A few things may be different since this video was filmed a couple of years ago, but the essential information remains the same.

So, could an entrepreneur kill its venture by skipping the Seed round and jumping to an A round?

Yes, it is a possibility and there are several reasons why, in terms of strategy these are the most relevant three:


When a startup is at an early stage, raising a Seed round, which is usually formed by a large number of participants,  gives it access to a broad network of mentors who can be very useful for a small, inexperienced and under-staffed company.  On the other hand, A rounds are more limited in the number of participating investors and, therefore, in the hands-on help that can be provided to the startup.


When entrepreneurs raise Seed money they are judged mostly on their vision while, as soon as they accept Series A capital, demands switch to data showing traction, growth, potential.  The real danger with pitching earlier than necessary  to Series A investors is that the company probably has not hit the right milestones yet, and it does not have a good fundraising strategy. After raising aSeed round, a startup can work on demonstrating traction (customer acceptance, virality, revenue, engagement, etc.) so that it will be more likely to have a larger number of Series A investors to choose from and, as a result, a higher probability of finding the best suited one.


There is no legal requirement for a startup to give any investor a board seat. However, professional VC firm usually make their investment contingent on a board seat.

 As Steve Blanks (the man who launched the Lean Startup movement) puts it:  “At the end of the day your board is not your friend. You may like them and they might like you, but they have a fiduciary duty to the shareholders, not the founders. (And they have a fiduciary responsibility to their own limited partners.) That means the board is your boss, and they have an obligation to optimize results for the company. You may be the ex-employees one day if they think you’re holding the company back.”

Therefore going directly to Series A means losing a lot of flexibility in pursuing one’s vision.  If this happens too early on, it can result in confusion, frustration, loss of direction and leadership and ultimately even in the death of the startup.

In fact, listening to the stories of failed “startuppers”, many of them blame their failure on this early loss of control and divergent views between them and the investor on the Board.

In conclusion, do not rush through the funding stages and plan your fundraising strategy carefully in order to increase your chances of success.

Tags: , , , ,


This RSS feed URL is deprecated, please update. New URLs can be found in the footers at [...]

NPRAfter Outcry, Crowdfunding Site Patreon Backs Off Plan To Raise ...NPRThe popular crowdfunding service Patreon has backed off plans to change its payment structure, after widespread, vocal and passionate opposition from creators and their fans. Last week, the site announced it woul [...]

TechCrunchHow hate speech crowdfunding outfit Hatreon crept back online ...TechCrunchIf you want to make a living creating white supremacist content, you're probably not going to do it via sites like Kickstarter and Patreon, which prohibit hate speech. Fortunately there's Ha [...]

ForbesCrowdfunding Do's And Dont's From iFundWomen's Karen CahnForbesDuring our conversation, she was transparent in sharing that her first software company, VProud, failed because she “did everything backwards” and spent too much time trying to perfect the product. “Pe [...]

EntrepreneurWhy Some Small Business Owners Are Turning to Crowdfunding to Save Their CompanyEntrepreneurMany owners of beloved local businesses, especially in pricier cities, have been forced to swallow their pride and appeal to their customers in times of crisis -- a process streamli [...]

CoinDeskKickstarter ICO? Don't Count On It Says Crowdfunding Leader ...CoinDeskThe company most widely associated with crowdfunding, Brooklyn-based Kickstarter, has no plans to get into the initial coin offering (ICO) business. Coming in response to the news yesterday that compet [...]

ChronicleLiveNo need for banks as North East businesses turn to crowdfundingChronicleLiveWhile the Distillery's fundraising campaign was undoubtedly a success, not every business gains the same level of support from the public. According to Dianne Sharpe, the CBI's former No [...]

TechCrunchFormer Gawker employees are crowdfunding an effort to buy Gawker.comTechCrunchWhile Univision acquired most of Gawker Media's sites last year (and renamed them as the Gizmodo Media Group), the deal didn't include Gawker itself. In fact, BuzzFeed reported last month [...]

Crowdfunding For French CastlesNPRYou too can own a French chateau, in part, anyway. Romain Delaume, CEO of Dartagnans, tells NPR's Scott Simon about a crowdfunding effort underway to preserve La Mothe-Chandeniers. SCOTT SIMON, HOST: What if I told you that for about $60, you cou [...]

Coindesk (press release) (blog)Crowdfunding Giant Indiegogo Opens to ICOs - CoinDeskCoindesk (press release) (blog)The startup revealed today that, through an existing partnership with MicroVentures, it will begin offering services to projects seek to use the blockchain funding model. [...]

CFB Finance


  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |