You are Probably Not Ready for Seed Capital 

When founders think about seed capital, they think about what they need: early money to build their product, prove the concept, and get to market. Seed capital is validation. It’s the funding that turns an idea into a real company. 

That’s exactly backwards. 

To understand seed capital, stop thinking about what you need from seed capital. Start thinking about what the seed investor needs from you. 

Seed investors need 30x to 100x returns on their successful investments to make their fund economics work. Not 5x. Not 10x. Thirty to one hundred times their money back. And not in two years—the average holding period from seed investment to exit is eight to ten years, sometimes longer. 

Welcome back to ‘Days of Our Startups’

In the afternoon heat, two analysts at Meridian Seed Partners are having to make some hard choices. 

Meredith twisted the blinds closed, shutting out the blazing Texas afternoon glare. She turned back to the conference room display where Brock tapped on the Seamlessly pitch, navigated to the traction slide and furrowed his brow. 

“Six months of revenue growth, 200 paying customers—I don’t understand why you don’t think they’re ready to scale.” 

Meredith leaned against the window frame. 

“I don’t doubt they have traction—I’m just not sure how much traction they’ll get. Seamlessly is one of a dozen tools trying to simplify payment workflows. Even with our money, they’re competing with established players and five other seed-stage companies. What’s the realistic exit? Best case, they get acquired by a payments processor for $30 million in five years.” 

Brock closed the pitch and pulled up Beacon Therapeutics, navigating to their research summary. 

“So, what… we invest in a company with zero customers, burning through grant money on preclinical work that needs our capital and…” 

Brock’s thumbs scrolled through his notes app. 

“…another $2 million just to get to Phase I trials? If Seamlessly doesn’t hit their numbers at least we backed a company with customers.” 

Meredith stepped away from the wall, arms crossed, the ghost of a weary smile crossing her face. 

“You want another portfolio adverb SaaS company in a crowded market hoping for a 5x exit?” 

Brock slumped as Meredith nodded to the screen. “Beacon is one of, what, two companies working on this specific bladder cancer pathway? If their preclinical data translates to humans and they hit their Phase I safety endpoints, we’re talking a nine-figure round. Meridian will need to syndicate with Grove Partners, Gulf State Ventures, and like a half dozen family offices just to stay in the game.” 

Brock opened his mouth, closed it, and rested his chin on his hands. 

“That’s a huge if.”

The huge if  is the point.  

Seamlessly might be the better company. It has customers, revenue, and a proven business model. But a 4x return—even a great 4x return—isn’t really enough for seed investors. Many promising early-stage businesses aren’t suitable for seed capital. 

Beacon Therapeutics is riskier by every measure. Pre-revenue, years from commercialization, dependent on science that might not work in humans. But when roughly 65% of seed investments fail completely, funds need the winners to be spectacular. Seed investors need investments that can return 50x to 100x. Beacon can do that. Seamlessly cannot. 

The brutal reality is that seed investors can afford to be incredibly selective. They want companies with Seamlessly’s demonstrated execution ability and Beacon’s billion-dollar exit potential. The power law rules seed investing: one or two massive winners need to generate the entire fund’s returns. 

Founders with early traction and paying customers often hear “no” from seed funds. Your impressive $500K in first-year revenue isn’t wrong for seed capital because it’s failing—it’s wrong because: 

• The exit isn’t big enough. A $30-50 million acquisition barely returns a seed fund’s investment at its typical ownership level. 

• The market caps your upside. When you’re competing with established players, acquirers know you need them more than they need you. 

• 15x isn’t enough when most investments return zero. With 65% of seed investments failing, funds need winners that return 50x or more just to make the fund work. 

• You don’t need to be huge. If your business can succeed at $10 million in revenue, that’s a bug to seed investors who need companies that only work at a massive scale. 

Seed investors aren’t just looking for good early-stage businesses. They’re looking for businesses that must be enormous or die trying, because those are the only ones that can generate the returns their model requires. 

Most founders aren’t ready for seed capital. Not because their businesses aren’t good enough, but because their businesses make too much sense. 

What is: A New Series 

“Days of Our Startups” is a new blog series that will attempt to shed light on some of the most pressing questions entrepreneurs face. Be sure to check back soon to see how our scrappy start up friends contiune on their journey!