A Guide to Micro Seed Funding

 

Introduction

As the internet has matured into a mainstream phenomenon, a new breed of startup companies has emerged in the consumer internet space.  These companies have taken advantage of the viral nature and network effect of the internet by developing applications to enable content creation, collaboration, and sharing among users.  Collectively, these internet applications make up what is known as Web 2.0. [1]  

The speed at which these applications can spread is mind-blowing.  iLike.com, a music sharing and discovery service, is one telling example, growing to over 6 million users less than 8 months after launching.  [2]  The time required to develop the initial version of many of these applications is no more than a few months of dedicated effort by a couple smart programmers.  In addition, the cost to develop, launch, and market a Web 2.0 application is incredibly low due to the diminishing cost of hardware and bandwidth, the free availability of open source software, and the word of mouth viral growth strategies that work so well into today’s electronic age.

The payoff for the entrepreneurs creating these applications and the investors funding the innovation can be substantial.  For example, Facebook.com was started by 3 college friends back in 2004.  Three years later, the site has an active user base of 30 million people, has turned down billion dollar acquisition offers, and is said to be considering an IPO in the near future. [3]  With the barriers to online innovation so low, and the potential payoff so high, a new investment model has emerged to take advantage of the changing dynamics.

Micro seed funding, a model first implemented by Paul Graham’s Y Combinator, provides groups of young entrepreneurs with just enough starting capital to live and work full-time on their products for a 3 month period.  During this time, the company founders are under pressure to develop their product as fast as possible, because at the end of the program they present a demo to a room full of angel investors and venture capitalists who, if impressed, can provide them with a next round of financing and get them one step closer to success. 

Micro seed stage funding has a number of important advantages and disadvantages for the entrepreneur.  This website will analyze these considerations from both perspectives and provide firsthand insight into the micro seed funding experience.


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Notes:
[1] http://www.oreillynet.com/lpt/a/6228
[2] http://blog.ilike.com/ilike_team_blog/2007/06/holy_cow_6mm_us.html
[3] http://mediabiz.blogs.cnnmoney.com/2007/07/12/10-billion-for-facebook