Seed is the New Series A
By: Rick Zullo, Co-Founder & GP at Equal Ventures
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When we started Equal Ventures, one of the core hypotheses we had was that “Seed was becoming the new Series A.”
Series A rounds had historically been several million dollars as the first institutional capital to come into rounds, but then those rounds started to drift bigger and later as the costs of starting companies fell, enabling companies to achieve meaningful progress on angel capital (what had previously been largely considered for “friends, family and fools”). This dynamic all of a sudden made angel investing extremely attractive, giving birth to its professionalization — seed investing.
The early seed investors were incredibly successful, leading to their own maturation. LPs seeking returns wanted to give them more $ so their seed/angel checks started to gravitate higher. For many of these firms, what were once $100k checks are now several million. This has forced Series A investors even later because companies can achieve even more progress.
Over the last few years, we’ve seen an extensive maturation of seed. These funds (formerly birthed from angel investing routes) were now taking board seats and gravitating to more mature companies that could absorb the capital they needed to deploy, giving birth to an even earlier stage of investing, pre-seed.
As we look at where seed valuations and round sizes are today compared to where Series A’s were 10–15 years ago, they are nearly identical. The latest PitchBook data from Q3 supports this, with the median seed pre-money valuation clocking in at $12m. This aligns conveniently with the median pre-money valuation of “early stage” rounds (i.e., Series A) in 2013 of $11m.
So what? Well, the Series A investors of 10–15 years ago operated very differently than most of the angel/seed investors of the last decade. With the rare exception, these Series A firms rarely shared deals with each other, because they wanted to maximize their ownership / dollars into the best deals (after all, they were taking board seats, so they were bandwidth constrained). They also ran more concentrated portfolios (never have I heard of a Series A firm with 40–50 companies). Alternatively, the predominant seed model of the last decade has been collaborative, high velocity and high diversification.
I didn’t make the rules, but I’m doing my best to play the game on the field and it seems pretty clear that Seed is becoming the new Series A. That isn’t to say that there aren’t new/different ways to win (I’m confident there are), but we need to be aware of these dynamics and recognize the pressure that this evolution creates on how we’ve historically invested and the skills required to be successful. For Equal, that means operating more like the “Original Series A” investors than “Micro VCs.” We think this better fits our style as a firm and are embracing the market’s rotation toward this style of investing at Seed. There are pros and cons to all strategies, but being authentic to your team’s abilities is the strategy that will position you best for success.
