The first check must also fund the second idea
The most dangerous moment in a young company's life is not when the initial plan fails, but months later, when the team identifies a necessary pivot but lacks the capital to prove it works.
The most dangerous moment in the life of a young company is not necessarily when the first plan fails, but a few months later: the team has already understood what needs to be changed and sees signs that the new direction is working, and then discovers that there is not enough money left to prove it. Instead of going out to the next round with proof, it goes out with another promise.
As an investor, I meet entrepreneurs at a stage where there is often no company or product yet. There is a strong team, a big problem, and a possible direction for a solution. The investment is made when it starts to be understood that the pain in the market is real and that there is a possible way to approach it, without the expectation that all the answers are already there. Very few young companies continue exactly according to the plan they presented on the day of the investment. Sometimes it is a full pivot, but usually the change is more moderate: the target audience, the product, or the sales method change, or the technology turns out to be a solution to a different problem. This is not necessarily a sign that the idea was weak, but that the company has started to learn from the market.
This is especially prominent in deep-tech and in companies that are building a new category. There is not always a dedicated budget, it is not clear who in the organization is supposed to buy the product, and the sale may drag on. Sometimes there are no competitors because the company is ahead of the market, but then it must also explain why the problem justifies a change in habits and budget. This learning takes time and money. If the need for change becomes clear when there is only a budget left for a few months, the entrepreneurs may go out for an additional round before they have enough proof in their hands. Then they may agree to less favorable terms, downsize just when the new path starts to work, or choose an investor they would not have chosen from a stronger position.
The conclusion is not that every company should raise the largest amount. A round that is too large may encourage rapid expansion, increase the burn rate, and create expectations that do not match the maturity of the company. A proper seed round should fund the way to the next goal, but leave room for the path to change. The money is supposed to buy also conversations with customers, experiments, mistakes, and an opportunity to fix them. Therefore, at the beginning of the road, it is important not only the amount that enters the company, but also how much capital the investors leave for the future and what will be required if the product needs to change. A follow-on investment is not supposed to keep alive a plan that turned out to be wrong, but to give the team time to show that the experience it gained led to a better plan.
Here the relationship between the entrepreneurs and the investors comes in. When the company meets the goals, it is easy to look aligned. The test comes when the CEO asks for more time, when the product is not progressing as expected, or when one needs to choose between continuing the path, a sharp change, or a quick sale. The investor is not supposed to manage instead of the entrepreneur, but he must ask hard questions and help make a decision without taking the responsibility away from him. This connection requires transparency and humility. The investor brings experience from different companies and periods, but the entrepreneur lives the company and controls details that no director sees from the outside. The entrepreneur must share difficulties before they turn into a crisis, and not just data that looks good. Investors can help in time only when they see the real picture.
The ability to change direction is not a permit to move from idea to idea without a strategy. Change must be based on new information: conversations with customers, product usage, business results, or technological changes. The goal is not to fund an endless experiment, but to allow a good team to fix a wrong starting point before it closes a company that can succeed. Ultimately, a seed investment is not a belief that the entrepreneurs already hold the right answer or product, but that they have the ability to find them and build a successful company from them.
Aya Peterburg is a founding partner and managing director at S Capital.
