VC Signaling Coming Home To Roost
blog.eladgil.com
blog.eladgil.com
If you judged by what VCs say when they turn people down, it would seem like the most dangerous thing you could do as a startup would be to start a company VCs couldn't add much value to.
Angels are on your team when they have 50k in you, but VCs are not. They are not truly om your side until they have a few million in you.
Bottom line: Build a company that your current investors want more of, and they will send the proper signals to new investors.
It seems that most companies that raise a seed round (and survive) go on to raise a series A before an exit, but many companies that raise a series A can get to an exit without raising subsequent rounds. (Admittedly, I don't have solid numbers; this is just based on casual observation) Thus, future signalling worries could be less important during the A round if you aren't as concerned about ever having a B round.
By the time you hit series B or C, you have investors who own a large part of your company already (and in most cases won't do an "inside round" - or if they want to do it, the entrepreneur does not).
So the dynamic post-series A becomes the VC helping you more in raising a B, but not competing for the series B. Since they are not competing to lead your B (they just pro rata), there is no signal (unless they do not want to pro rata, which is a very large negative signal).
Even more importantly, as Elad mentioned a VC firm can do many, many seed investments per year without much cost to them, but is very limited in the number of Series A investments. The rate-limiting resource here is time more than money; a VC can only sit on so many boards. While this makes a Series A investor passing a worse signal than a seed investor passing, the former is in practice much less likely to happen because of how resource constraints work.