Going for our seed round
About half a year ago I started raising our official seed round. An ambitious $1M round to help us expand and carry the company through 2014 and into 2015. After one glance at the local investment market in Israel, me and the rest of the board members weren’t very excited about our options. Not many investors in Israel invest in gaming and very few really understand open source. Moreover, many Israeli VC have proven to be very aggressive in negotiating terms.
Can investors invest globally?
Can we raise a round overseas? There is an assertion in startup fundraising that investors only invest locally. At the same time, there is so much money looking for investment in the rising NYC scene or the established one in the Valley. There must be a few people who will be open to loosen up the location criteria if they see a really good company. One of my board members had a very strong conviction that U.S. investors will appreciate the opportunity to invest where their money buys more.
Well, it could be an interesting idea, I thought. Being an entrepreneur, I feel that many rules should be bent or broken and in a global digital world, it makes sense to challenge this one. Let’s do it.
Why investors like to back local companies?
There must be a few reasons why this assertion is usually correct. Let’s try to understand them:
- Some institutional investors are obligated to invest in companies that are registered in the U.S. and have the IP residing in the U.S.
- Funds that have limited partners (LPs) often operate under a certain mandate. They might have promised their LPs that they will only invest in a certain geography.
- Getting funded requires multiple touch points with an investor over a period of time. Investors needs to hear good things about you from multiple sources and have many reference points.
- The culture difference makes it hard for investor to identify quality. If someone went to Stanford and worked for Google it says something to investors. The Israeli comparable means nothing to U.S. investors.
- Filtering – investors need to filter through a lot of investment opportunities so they rather save energy by rejecting anything that doesn’t fit a certain profile.
- Warm intros – investors relay on their immediate network for filtering so knowing many people in the local early stage scene is key to get meeting with investors.
- Availability for meetings and phone calls
- Language and culture gap
This is part 1 in a 3 parts post. Click here to read part 2