The Atomization of Seed Venture Capital - NextView Ventures

ATOMIZATION

and what this means for entrepreneurs

OF SEED-STAGE VC ROUNDS

the

What’s Happening:

Seed was previously (1) a single funding round and (2) one part of a

linear path of VC rounds startups raise.

What’s Happening:

Seed was previously (1) a single funding round and (2) one part of a

linear path of VC rounds startups raise.

Today, however, we’re seeing something much different à

Seed has been fractured into smaller parts to be re-assembled in bespoke fashion by founders.

What’s Happening:

Instead of one generic idea of “seed,” there are many

variations, each with slightly different purposes.

What’s Happening:

And instead of one linear path (seed, Series A, Series B, etc.), founders are creating many different fundraising

paths based on the specifics of their business and milestone achievements.

What’s Happening:

So how did we get here? Let’s break it down, starting in the year

we launched NextView (2010) à

2010: We started NextView to fill a need, especially on the East Coast. Seed was barely considered a go-to first round, as Series A VCs often invested pre-product/market fit (PMF).

2010:

Along with several contemporaries, we emerged as seed became THE preferred initial round.

We started NextView to fill a need, especially on the East Coast. Seed was barely considered a go-to first round, as Series A VCs often invested pre-product/market fit (PMF).

Over Time: The venture market evolved to a point where seed was indeed dubbed the “new Series A,” as Series A investors sought mainly post-PMF companies.

Over Time: The venture market evolved to a point where seed was indeed dubbed the “new Series A,” as Series A investors sought mainly post-PMF companies.

WHAT’S HAPPENING:

However, shortly after it became the prototypical first round of institutional

capital for pre-PMF startups, seed was then smashed into pieces.

The Atomization of Seed

The Atomization of Seed

(Moved further out.)

The Atomization of Seed

Additionally, instead of one standard path, founders

today are able to re-assemble the atomized seed round according to the specifics of their business.

The Atomization of Seed

Additionally, instead of one standard path, founders

today are able to re-assemble the atomized seed round according to the specifics of their business.

What’s Happening:

There are a few immediate ramifications founders should know.

(After that, we’ll explore the two factors that caused this trend.)

Ramifications Founders Need to Know

Think about “seed” not as one round but as a stage

that can encompass multiple financings. This should help you be more thoughtful about what

milestones you need to hit to then raise.

1 2 3

ß “Seed” à (True to our original vision, NextView invests across the spectrum regardless of labels.)

Ramifications Founders Need to Know

Pre-seed can be viewed as a way to raise a more appropriate amount of capital while bringing on sophisticated investors early. Founders can also

minimize net dilution (vs. larger initial seed rounds) while keeping the door open for quick injections of capital at the seed if things begin to work quickly.

1 2 3

ß “Seed” à

Ramifications Founders Need to Know

1 2 3

ß “Seed” à

Here’s how NextView makes pre-seed investment decisions >>

Ramifications Founders Need to Know

At the other end of the seed spectrum, the stigma

around second-seeds (or “seed extensions”) is slowly eroding. In fact, firms like ours actually find many second-seeds attractive, particularly in B2B SaaS.

1 2 3

ß “Seed” à

WHAT’s HAPPENING:

So what are the two aforementioned factors that caused the atomization of

seed VC in the first place?

(We’ll then conclude with a crucial warning for all involved.)

WHAT’s HAPPENING:

The cause of this atomization sits at the intersection of two trends:

1.  Startups require less capital to start. 2.  Series As require more proof of PMF.

TWO SEEMINGLY DIVERGENT FACTORS

Seed-stage startups require less capital.

Series A VCs mainly seek post-PMF traction.

TWO SEEMINGLY DIVERGENT FACTORS

Seed-stage startups require less capital.

Series A VCs mainly seek post-PMF traction.

So at the very same time, entrepreneurs can do more

with less capital but are required to do more to raise it.

TWO SEEMINGLY DIVERGENT FACTORS

Seed-stage startups require less capital.

Series A VCs mainly seek post-PMF traction.

So at the very same time, entrepreneurs can do more

with less capital but are required to do more to raise it.

(This makes assembling multiple seeds rather useful.)

WHAT’s HAPPENING:

Here’s the crucial warning in all of this. It has to do with why anyone builds

companies in the first place à

WHAT’s HAPPENING:

The point of your startup isn’t to raise money. The point is to build something

meaningful for your customers, your team, your investors, and yourself.

So, remember à

DON’T LOSE SIGHT OF THE FOREST FOR THE TREES.

DON’T LOSE SIGHT OF THE FOREST FOR THE TREES.

All this parsing of seed can be misinterpreted as small ball. But while it’s important to be milestone-driven, it’s paramount to have a bigger story and mission driving

your company well beyond the seed stage (regardless of how many “seeds” exist).

IN THE END: This atomization is simply the reality we’re seeing. It’s not a belief we have, nor are we

passing judgment on if it’s good or bad.

IN THE END: This atomization is simply the reality we’re seeing. It’s not a belief we have, nor are we

passing judgment on if it’s good or bad.

In sharing this, we hope we’ve clarified the current climate so you can focus on

what really matters in your work.

WANT TO LEARN MORE?

NextView’s David Beisel explores everything from this presentation in

much more detail here:

Read the Full Essay >>