Written by: Janine Kick
Is it me or are more and more ‘big’ funds coming down stream?
a16z announced last week that they have raised a $400M seed fund, Index closed a $200M seed fund earlier this year and Kleiner Perkins reentered the ‘early stage’ market with a $600M fund. Sequoia, maybe the first ‘big’ fund to come down stream, created its renowned scout program over 10 years ago.
What’s really going on here?
You don’t need me to remind you but more capital has been deployed in the first half of this year than ever before. Over $6B of the $288B deployed globally in the first half of 2021 went into seed stage organizations and $43.4B went into early-stage startups.
It’s no secret that the capital flood has caused deal sizes and pre-money valuations at all stages to soar. Seed deals today resemble Series A deals of 5 years ago. It’s no longer the case that larger funds can come in with a Series A deal to “take the round” in this competitive market. Getting access to the hottest Series A deals means getting in on a startup’s Seed round is mission critical.
From my perspective, this leaves founders with two main choices when seeking Seed funding.
- Big Fund
Larger funds can re-invest when the company begins its Series A (and beyond) fundraising process. A larger fund can facilitate introductions to portfolio companies (read: potential customers), provide instant credibility in the form of brand recognition, and even write less dilutive, larger checks. The risk here is what if the fund passes on the next round? The possible implications here could do more harm than good.
2. Specialty Seed
Taking capital from a traditional seed fund can be seen as a safer option for some founders. The best seed funds connect companies to experts in the situations first time founders often find themselves in like founder break-ups or making early, key hires. Seed funds also tend to have smaller, more focused portfolios meaning their partners have a bigger stake in the success of your company.
At the end of the day, whether you take the big fund route or choose to focus on traditional seed investors, what matters most is who is actually going to do the work alongside you. One thing is for certain: with more capital going into the market, VCs are becoming more and more competitive for seed investments which means as a founder you have more and more options.
Which path will you take?
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