As little as 5 to 10 years ago, the very definition of seed investment was investing before any product had been built or prototyped. Since, it has become possible to build a startup on far less capital, so seed investing has become less risky.
However, the institutionalization of seed investing has resulted in most investors believing that you need a prototype to raise a seed round. So what does an investor gain by waiting until you have a prototype?
10 years ago, there was a large degree of technology risk associated with building a consumer internet product or enterprise software application, so having a working prototype took a lot of risk out of the deal. But today, there is very little technology risk so the only real benefit (to investors) of having a prototype, is that the investor can be sure that the company is ‘on the right path’ to creating a product that consumers will love.