According to VentureBeat, "The advantage of a seed round is that it
done as a “convertible” loan, which means the $250,000 is essentially a
no-strings-attached loan to an entrepreneur. There is no equity stake claim by
the investor at the time, which is good for the entrepreneur, who can see how
good his idea is first. If the idea gains traction, he can raise money in the
series A and negotiate a high valuation for his company. If he can command a $5
million valuation, for example, the investor’s $250,000 seed money converts
into only 5 percent of the company."
This is a great idea. Traditionally, it has been very difficult for VCs to
differentiate themselves from each other, and this certainly does the trick.
CRV should see a major influx of new concepts and business plans. Most
importantly, it should see new ideas/ventures well before its VC competitors.
This also reminds me a bit of Grameen Bank. Grameen Bank founder Muhammad
Yunus recently won the Nobel Peace Prize. Grameen Bank specializes in
microcredit or very small business loans (average of $200). Since 1976, Grameen
Bank has made approximately $5.7 billion in loans to more than 6.6 million
mostly poor people who were shunned by traditional banks. The repayment rate is
an astounding 98 percent.
Hopefully CRV will have similar success with this great concept!