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Where's the seed?

The other day, I met up with one of my favorite investors.  We talked about some deals we had done and this investor brought up how they weren't really doing true first money in anymore.  Instead, they said that entrepreneurs should raise 200-300k on their own and get something up and off the ground first with traction and that they'd rather wait to see where that goes.

That was on the heels of another conversation I had with an investor whose firm was about to raise a larger fund.  It was a big next step for them, but it also meant that putting 200k of 750k in a person and half a prototype wasn't going to be the kind of round they could do anymore.  They were effectively out of the seed game.

I've seen this happen over and over again in New York over the last few years.  Seed really doesn't scale--and like any good startup, VC firms themselves are looking for ways to leverage themselves and get to scale.  Picking out the one great entrepreneur out of the sea of way too early startups is incredibly hard, requires a lot of sifting, and you can't put that much money to work anyway.

So why bother?

It makes sense, except when I square it with my own personal experience.  Some of my best investments have been in this way too early stage.  GroupMe was done right out of a hackathon.  Canary barely had a prototype for just the hardware and hadn't done its record setting pre-sale yet.  Tinybop was just a guy and an idea.

The interesting thing out of those rounds is that many of them either struggled at the time to raise or would struggle today.  Many of the original GroupMe investors probably would see that deal as being too early if they were raising now--and the Canary and Tinybop rounds have a mishmosh of non-traditional investors and angels mixed in.  The latter two firms don't have any other traditional seed funds invested in them in their first rounds.  

The seed fund feels like a very temporary animal these days.  No one wants to stay at this level. Many of the people who say they do seed would never pull the trigger on a pre-product concept and they're looking ahead to raising a bigger next fund.  That means more staff, bigger offices and potentially bigger deals.

I think part of the reason why NYC firms don't seem to be staying at this level is our level of sophistication in building financial firms.  Finance is something we grow and scale here.  If you invest for a living and you're in that world, people will look at you askew if you say you don't want to raise a bigger fund next time around.  Investing in two people in a prototype for the love of the tech and because you like startups feels like a rarity these days.

Don't get me wrong, we do need bigger funds--but someone has to take risk early on.  That's been falling into the hands of the small startup funds--people who can't write bigger checks because they're just starting out.  It makes this super confusing and tough to keep track of for an entreprener.  "Who actually still does seed?" is a question I hear over and over.

Personally, I'd rather write that check than wait for tons of traction.  It's fun for me and particularly rewarding if you can help a company get off the ground at the way too early stage.  Does it scale?  Not at all.  Who cares?  I'm not playing that firm building game and don't care to.

That puts an extra burden on me to find like-minded coinvestors.  I'm happy to meet other folks in NYC who are willing to write checks and roll up sleeves in that way too early stage--when people will look at you like you're crazy in the moment and look at you like a genius in hindsight.  If that excites you and you're willing to put money to work next to mine, drop me a line, especially if we're doing the same thing, know each other, and haven't caught up in a while.  

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