Seed Fund, Early Stage Fund

VCs look alike to startup founders. You miss the important differences.

It is weird that there are any differences really. So it is understandable to be confused. It’s a small business. Only $30bn invested per year in US. Yet there is intense specialization by stage, technology type, region and style.

Two different things have happened in the last decade that I have been wondering about.

One. Things got cheaper to make so the milestone stage definitions moved earlier in dollar terms. This has created confusion about what a Series A is. Is an A when you raise $8mm in equity or is it when you have a product beta that works with promising customer market ahead? The A has changed so there isn’t consensus. The steps people take are the same as before, just more cheaply, and the labels for those steps need updating.

But a new thing happened which is whole funds that focused on investing amounts resembling angel deals. Seed funds. This is one side of the “barbell” market people talk about. Lots of stuff going early. For valid reasons. Maybe too many such people. But not insane.

Two. It was harder to IPO due to regulation and dot-com mania hangover so nobody did. So instead of going public, large businesses raise from private equity style investors.

This is also an example of money moving “earlier” in the event chain. and it’s the other side of the barbell people talk about. “VCs investing late”. But really many of these “VCs” are somewhere between hedge funds and PE funds.

Finally, an observation about the gap created. There is a perception that Series A therefore faces a shortage. On this topic I believe some analysis is needed. As far as I can tell all the big funds continue to do 10-12 deals per year. I’m going to do a little research.