Opinion
A seed round should buy founders the right to change their minds
"At seed, the original plan is rarely the final one," writes Aya Peterburg, Managing Partner at S Capital. "The real danger is discovering the right direction only after there is too little runway left to prove it."
By the time a startup knows enough to make a better decision, it may have already spent much of the money raised around its earlier assumptions. The team has hired people, built technology and worked with customers, only to discover that the product, market or sales approach needs to change. The problem is not simply that the first plan was wrong. It is that learning what comes next can arrive after much of the runway has already been used.
As an investor, I often meet founders before there is a fully formed company, sometimes before there is a finished deck or product. At that point, I am looking at the strength of the team, the depth of the problem they understand and whether the market can become large enough to support a meaningful company. I also want to see how they think under uncertainty: whether they can listen, challenge their own assumptions and keep moving when the evidence changes.
In my experience, very few young companies execute exactly the plan they presented when the first investment was made. Sometimes the change is dramatic enough to be called a pivot. More often, it is quieter: the target customer changes, the product evolves, the sales
motion turns out to be wrong, or the founders discover that the technology they built solves a more important problem than the one they originally identified. That does not necessarily mean the first idea was weak. Often, it means the company has started learning from the market rather than only forming hypotheses about it.
Deep-tech companies and startups creating new categories may face customers with no dedicated budget for the problem and no clear executive owner for the purchase. Having few competitors can look like an advantage, but it can also mean the market has not yet learned why the problem deserves attention, a change in behavior or a dedicated budget. The company may need to build a category at the same time it is building a product.
All of that learning costs time and money. By the time a startup realizes it needs to change direction, it has usually already hired people, built technology and spent months working with customers. A new thesis then has to be tested. The product may need to change, new customers need to be found, and the sales process may have to be rebuilt.
The company's knowledge may be improving just as its financial flexibility is disappearing. If only a few months of runway remain, founders may have to start fundraising before the new direction has had time to produce meaningful evidence. They can find themselves accepting terms they would otherwise reject, cutting the organization just as the new path begins to work, or choosing an investor they would not have chosen from a stronger position. Insight has arrived, but there is no longer enough time to capitalize on it.
More capital is not automatically more flexibility. Too much capital at the wrong stage can encourage premature hiring, increase burn before the business is ready and create expectations for milestones that do not match the company's maturity. The investor attached to that capital matters too. A large check or a famous fund is not automatically the best fit when that investor may remain on the cap table until exit, long after the original product plan has changed.
A good seed round should finance the path to the next meaningful milestone while leaving room for the path itself to change. That means paying not only for engineers, salespeople and product development, but also for customer conversations that invalidate assumptions, experiments that fail, longer-than-expected sales cycles and the opportunity to act on what the company learns.
Follow-on capital should give a strong team enough time to demonstrate that what it learned has produced a better plan, rather than simply keep an unsuccessful one alive. The relationship between founders and investors is tested when targets are missed: when the CEO asks for more time, when the product is not progressing as expected, or when the company has to choose between staying the course and making a significant change.
An investor should bring pattern recognition, ask difficult questions and help founders evaluate their options without trying to run the company for them. The founder lives inside the business every day and sees details no board member can fully see from the outside. Founders need to surface problems before they become crises, while investors need enough humility to recognize the limits of their own experience.
Flexibility, of course, cannot become a license to jump endlessly from one idea to another. Changes should be driven by new information: customer conversations, real product usage, business results, technological shifts or other evidence that challenges the original assumptions.
Seed investing is ultimately not a bet that founders already have the right answer or even the right product. It is a bet that they have the ability to find them and turn what they learn into a great company.
Aya Peterburg is Managing Partner at S Capital.
