The Peace Dividend of the Seed Surge

A lot of things have changed since we started OATV 10 yrs ago. Back then, we struggled to articulate and shape a funding gap that fell somewhere between angel investors and traditional VCs. The investment firms that emerged to fill that funding gap took on a number of names in those early years- super angels, micro VCs- eventually settling on the term seed funds.

We were different. We were misunderstood. We executed like angels, but had the resources of a venture firm. It was the wild west and we were the Tonto to many Lone Ranger entrepreneurs.

Over time, that gap became more and more obvious to other new funds. And more and more attractive to the Sand Hill Road set. The little trickle that our firms created quickly became a tidal wave of capital flowing into companies at their earliest stages.

Given these are private companies functioning in private markets, the numbers are always a bit murky, but there are some numbers that shape a trend line; namely:

In the last decade, seed rounds of $1-$2M have increased 7x.

In the last 10 years, 7 times more founders have been exposed to the good, bad and ugly of starting and growing a venture funded company. Each of those founders had to recruit employees and build teams funded by their venture investors. So, not only did 7x the founders get the experience of running a VC funded startup, 7x the number of employees have participated in growing VC backed startups.

So, why does this matter?

In Ailleen’s analysis of companies valued at $1B or more she teased out a number of insights that buck some of the conventional wisdom and well worn narratives of entrepreneurship. The one I’m most intrigued by is this one:

Nearly 80 percent of unicorns had at least one co-founder who had previously founded a company of some sort.

Despite the entrepreneurial archetypes of disruptors erected as monuments to youth chiseled to resemble the Zucks and Gates, the vast majority of highly valued businesses were started, not by doe eyed first time founders, but those with the experience of starting a business prior.

If you could increase the number of repeat founders returning to start companies, there’s a chance we could see a correlated increase in the number of highly valuable companies grown.

Chris Anderson, CEO of 3D Robotics, has a wonderful quote in relation to why we’re currently seeing such an enormous wave of innovation happening in hardware and connected devices. He says this wave is

the peace dividend of the smartphone wars, which is to say that the components in a smartphone — the sensors, the GPS, the camera, the ARM core processors, the wireless, the memory, the battery — all that stuff, which is being driven by the incredible economies of scale and innovation machines at Apple, Google, and others, is available for a few dollars. They were essentially “unobtainium” 10 years ago. This is stuff that used to be military industrial technology; you can buy it at RadioShack now. I’ve never seen technology move faster than it’s moving right now, and that’s because of the supercomputer in your pocket.

I love that.

A Cambrian explosion of innovation in hardware, robotics, space, etc. as a peace dividend in the race for smartphone supremacy.

Similarly, the current seed surge is a result of VCs, seed funds and angel investors waging war to find, and fund, the next Unicorn.

The peace dividend of this seed surge is a 7 fold increase in founders who’ve experienced starting VC backed startups and a 7 fold increase in the number of employees they recruited to help scale those VC backed startups.

We are just beginning to see that wave of repeat founders and those experienced employees returning to start and grow their new businesses.

I can’t help but think we are on the cusp of a similar Cambrian explosion in entrepreneurship which will reshape the tightly held beliefs we have about starting and scaling businesses.

This is the wave that is designed to ride.

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