Several years ago, I ran across this diagram of the financing cycle of startup companies on eandua.com and thought it was an elegant expression of where true seed stage capital fits in the overall scheme of our economy and the critical role it plays despite it’s relatively small dollar amounts.
I also think this points out a somewhat obvious, but often overlooked, concept…things can really start to take off once a company gets to Break-Even and is cash flow positive.
That is why I believe the goal of most seed stage investments should be to get companies to a positive cash flow. When a company gets sustainable positive cash flow all kinds of good things are possible because the home runs have a chance to happen, but solid returns can be achieved over time even without them.
