The Pear VC Series 1: Secrets of Seed

The seed stage venture ecosystem demystified

The HBS Entrepreneurship Club is starting the year with a series of articles written by Fellows from Pear VC. They’ll cover a wide range of topics from the US Seed stage venture landscape to predictions for the year and deepdives on building your startup on blockchain and cloud hosting!

We’re kicking off with Pear VC Fellow Julia Klein.

Questions or ideas? Reach out to Jad — Pear Fellow and HBS Entrepreneurship club’s leadership team.

You have a brilliant idea for a new product that solves a glaring problem for consumers or businesses. You’ve talked to potential customers and are positive that there is a market for your idea. You’ve recruited a passionate founding team. Maybe you’ve even raised money from family, friends, or angel investors. To take the next step, however, you’ve decided that you need the capital and connections that institutional venture funding provides — it’s time to raise a seed round.

For first-time founders, those based outside of Silicon Valley, or those less well-connected to the venture community, knowing where to start when raising funding is difficult. Selecting initial investors is, perhaps, one of the most important decisions that a startup founder will make. When carefully chosen, these initial backers can provide crucial connections to talent, customers, and later stage investors, as well as invaluable advice. How then, do you make sure you are pitching the right investors?

This is an increasingly difficult question to answer, especially given the recent proliferation of small seed-focused funds, with more than 500 sub $200 million funds raised since 2011. While navigating the burgeoning seed ecosystem can seem daunting, many of these funds specialize in geographies, industries, or business models. The key is finding the investors that align with your startup in these categories. A few additional elements to consider when targeting seed investors are:

• Size and structure of the fund — Is the fund large enough to lead or follow-on in future rounds and has the firm reserved enough capital to do so? Long-term partners can provide value through both capital and strong signaling to future investors.
• Strength of network — Does the fund have experience building strong syndicates? Does it have relationships with potential Series A or later stage investors? Does it have connections to key customers or potential executives?
• Level of involvement — Does the firm require a board seat? Will the deal lead take an active day-to-day role in operations and strategy? What is the expected frequency of communication with the firm? Different startup founders prefer different levels of hands-on assistance from their investors. Aligning expectations regarding investor involvement is critical to building a strong relationship with a seed investor.

Below, I provide a helpful overview of the major players in the seed stage venture landscape, based on geography and industry of focus.

You may notice that the above includes only five geographies. These represent current epicenters of seed venture or up-and-coming, regionally significant venture markets. Given the explosion of seed, however, it is increasingly easy to find high-quality firms regardless of geography. Below I outline a few firms that fall outside the above geographies.

Pacific Northwest / Mountain States

• Ignition Partners (Seattle)- Enterprise Technology focused firm that invests in seed, early and later stage
• Pioneer Square (Seattle)- Startup studio and venture fund that invests in pre-seed, seed and Series A
• Flying Fish (Seattle) — Deep Tech and software focused seed stage firm that invests primarily in the Pacific Northwest
• Madrona (Seattle) — Enterprise and consumer technology focused firm that invests in seed and early stage
• Maveron (Seattle & San Francisco) — Consumer technology and consumer products focused firm that invests in seed and early stage
• Seven Peaks Ventures (Portland) — Most active seed and early stage firm in Oregon
• Foundry Group (Denver) — Technology and hardware focused seed, early stage, and fund-of-funds investor

Midwest

• High Alpha (Indianapolis) — Startup studio and seed stage VC
• Arthur Ventures (Fargo and Minneapolis) — Seed investor that invests exclusively in B2B software companies outside of Silicon Valley
• Dundee VC (Omaha) — Seed and post-seed investor that invests in Midwest startups
• Cultivation Capital (St. Louis) — Seed and early stage investor that invests in technology and life sciences
• CincyTech (Cincinnati) — Seed investor that invests primarily in Ohio startups within the enterprise software and life sciences sectors
• ATX Seed (Austin) — Seed investor that invests primarily in Texas startups
• Silverton Partners (Austin) — Seed and early stage investor

Mid-Atlantic

• Hatteras Venture Partners (Durham) — Seed and early stage investor that invests in healthcare and biotechnology
• IDEA Fund (Durham) — Seed and early stage investor that invests in the Southeast and Mid-Atlantic
• Grotech Ventures (Washington DC) — Seed and early stage investor

In addition to geographically focused funds, another recent phenomenon in seed stage venture is the rise of narrowly dedicated, sector-focused funds. These funds can be valuable seed investors, providing sector expertise and connections. I’ve listed select sector focused funds below.

Sector Focused Firms

• Bolt, Root Ventures, SOSV — Hardware
• Advancit Capital, Slow Ventures, Spark Capital — Media
• BBL Ventures, Cottonwood Venture Partners — Energy
• TenEleven Ventures, .406 Ventures, Strategic Cyber Ventures — Cybersecurity
• Wave Capital — Marketplaces
• Ribbit Capital, Nyca Partners, FinTech Collective — Fintech
• Fifth Wall Ventures — Real Estate

A final trend within seed stage venture — and the broader venture community — is the response to increased societal value placed on social/environmental responsibility and diversity and inclusion. These social catalysts have spurred a wave of seed stage venture firms focused on investments in startups led by underrepresented founders or companies with social missions.

Underrepresented Founder Focused Firms

• Female Founders Fund
• BBG Ventures
• Golden Seeds
• True Wealth Ventures
• Backstage Capital
• Harlem Capital Partners
• Base Ventures

Social Impact Focused Firms

• Material Impact
• Obvious Ventures
• The Impact Engine
• Social Impact Capital
• Better Ventures
• Kapor Capital
• Notley Ventures
• Omidyar Network
• TEC Ventures

The process of finding the right seed investors can be onerous but its importance cannot be understated. While this is, by no means a comprehensive overview of all seed firms, I hope that it will be a useful starting place for those embarking on a seed stage fundraise. Good luck!