Is the seed/inception stage experiencing a valuation bubble decoupled from later-stage pricing?

Harry Stebbings · Jan 17, 2020

Current valuations are worrying, with companies at $1M ARR raising at around $100M

Scope: stated as his own investor-side worry, asking whether he is wrong

41:29 20VC: Portfolio Construction, Optimising SPVs, Opportunity Investing "Between Rounds", Being Distribution-Centric Over Product-Centric and Capital Concentration Within Funds With Sumeet Gajri, Chief Strategy Officer @ Carta

Harry Stebbings · Aug 29, 2022

The interviewer contends that prices have not recalibrated at seed and Series A — if anything there is price inflation at pre-seed and seed because growth funds have migrated earlier

Growth-stage investors coming down earlier in the stack has increased competition for a finite set of early deals

Scope: specific to pre-seed, seed and Series A

8:21 20VC: Is Now Really the Best Time to Be Investing? WTF is Happening at Growth Stage Investing? Why VCs Have Gotten Lazy Over the Last 2 Years? Investing Lessons from Hitting with Braze and Missing with Snowflake with Logan Bartlett, Managing Director @ Re

Harry Stebbings · Feb 27, 2023

Seed and pre-seed pricing has not come down in line with the market correction the way people would expect.

Scope: based on his own observation of deals

26:33 20VC: How Multi-Stage Funds Changed The Game For Seed Rounds, Why Signalling Risk is BS, The Three Most Important Variables for Founders When Raising Rounds & A Debate on Portfolio Construction: Does Ownership Matter with David Tisch

Harry Stebbings · Aug 11, 2023

Seed pricing has not corrected at all, even as multi-stage funds pull back from Series A and B checks, more rich tech execs angel invest, and more people try to raise funds.

He observes multi-stage funds retreating while new individual and fund capital keeps entering the earliest stage.

Scope: his own market observation, offered for challenge

12:21 20VC Roundtable: NEW FORMAT: Why the Seed Investing Model is Broken, How to Make Money at Seed Moving Forward; Who Wins and Who Loses, Why Venture Value Add Platforms are BS and Failed and Why There Will be an IPO per Week in H2 2024

Harry Stebbings · Oct 2, 2023

Seed has been immune to the macro cycle — prices have remained just as high and it's the only stage left untouched, with the correction only hitting when those companies go to raise their next round.

Large multistage funds migrated earlier, keeping seed pricing elevated.

Scope: the reckoning is deferred to the next round

32:20 20VC: The Services Model of Venture Capital is Broken, The Best Founders Do Need Help, The Most Important Signals to Assess When Meeting Founders & Why Kids Bring Less Happiness and More Joy with Phin Barnes @ TheGP

Harry Stebbings · Oct 27, 2023

Seed pricing today is at the highest level he has ever seen, and that is very concerning.

0:31 20VC: The Three Types of Seed Round Today, Why Seed Has Never Been More Competitive, Why Pricing Has Never Been Higher, Why Boards at Pre-Seed Can Be Helpful & How Too Much Cash Too Soon Can Harm Companies with Ed Sim, Founder @ Boldstart

Ed Sim · Oct 27, 2023

Venture today is irrationally competitive with too much money chasing deals, and $30-50M inception rounds are bonkers and distort founders' and investors' expectations

Such pricing skews people's brains and memories about what is normal

40:13 20VC: The Three Types of Seed Round Today, Why Seed Has Never Been More Competitive, Why Pricing Has Never Been Higher, Why Boards at Pre-Seed Can Be Helpful & How Too Much Cash Too Soon Can Harm Companies with Ed Sim, Founder @ Boldstart

Ed Sim · Jan 10, 2024

There is a massive bubble at the inception/seed stage

Carta data shows seed was the only priced round to increase in valuation from Q1 2021 to Q4 2023, because late-stage and multistage funds paused later deals and instead kick the can down the road by paying whatever price for two founders and an idea, since the first check is the cheapest entry into a winner

Scope: inception/seed stage specifically

9:41 20VC: Did Figma Kill M&A Markets in 2024, The Three Biggest Mistakes Made in Growth Investing, The Three Requirements Companies Need to Go Public in 2024 with Ed Sim and Jamin Ball

Harry Stebbings · Oct 5, 2022

Early-stage pricing has not actually changed for the best companies — capital migrating from late to early has stabilized prices where they were — while growth has completely died

Migration of capital from late stage to early stage offset any downward pressure at the early stage

Scope: applies to the best companies at early stage

32:47 20VC: The Rippling Memo: Bedrock's Geoff Lewis on The Conviction Building Process to Write a $200M Check and Co-Lead Rippling's Series D | Why No Competitor Can Out Execute Rippling | Uncapped SAFE's Why You Should Never Do Them and Why Geoff Broke The Ru

Harry Stebbings · May 29, 2023

Seed is relatively immune to the current downturn — seed pricing has stayed where it always has been and will continue to

Multistage funds are moving down, seed funds continue to invest as before, anything working has been preemptively taken out of market, while B, C and D rounds are a death zone

Scope: anything in market has not got the support of existing investors

39:25 20VC: Why Financial Models at Seed, $5M Seed Rounds & The Fear of Signalling Risk is all BS | Why Multi-Stage Firms Have Destroyed Seed & Who Wins and Who Loses in the Next 10 Years of Venture with Adam Besvinick, Founding Partner @ Looking Glass Capital

Harry Stebbings · Jun 23, 2023

Seed pricing is immune to macro cycles and will stay at very high levels persistently.

Multistage funds continue moving earlier, sustaining demand at seed.

44:59 20VC: How to Raise a Venture Fund from Deck to First Meetings to Final Close, Why Venture is a Young Person's Game and Why Multi-Stage Funds Have Not Ruined Seed with Rob Go, Co-Founder @ Nextview

Phin Barnes · Oct 2, 2023 · hedged

Because seed is more competitive and the next round's capital is harder to come by, the bar for standing out as a founder and company is higher and the urgency around execution is elevated — which makes early stage interesting right now.

Scarcer follow-on capital forces standout execution and delivery.

32:43 Scarcer follow on capital raises the execution bar and urgency for seed stage founders

Jason Lemkin · May 6, 2022 · speculative

Seed may still be the only bargain in venture today and is arguably underpriced relative to unicorn valuations, because seed hasn't seen the same inflation as Series A

seed prices have roughly tripled while later stages have moved 20x, and a fund doing 30 such deals only needs about 15% to become decacorns for the math to work

26:51 Seed remains underpriced bargain relative to inflated later stage valuations

Jason Lemkin · May 6, 2022

The media conflates privileged pre-seed with less privileged pre-seed; founders with no social proof have not seen the same valuation inflation

29:58 Valuation inflation is concentrated among founders with social proof not broadly across pre seed

Logan Bartlett · Aug 29, 2022 · hedged

At the earliest stages investors apply far less financial rigor and talk themselves into believing the difference between a $4M, $6M and $12M post-money doesn't matter, which is likely driving price inflation at seed

Investors reason that if it works they can deploy far more capital later, so the 100% price difference between a $4M and $8M post feels immaterial

8:42 Low financial rigor at seed drives price inflation

Rob Go · Jun 23, 2023

In the early-2010s seed market, ownership acquired relative to fund size was more favourable than today

Seed rounds were around $1M, so $300–400K checks bought meaningful ownership, and out of a $21M fund it took very little to move the needle

10:37 Ownership per dollar invested was more favorable in the early 2010s seed market than today