Does splitting early-stage financing into separate pre-seed and seed rounds serve founders and the market well, or has the staging system become dysfunctional?

Semil Shah · Nov 21, 2022 · hedged

The right entry point at seed is shifting toward teams that already have a product in market

The gap between seed and getting a $10M Series A check is now so wide that you need de-risking that lets you bridge from seed to A; in the prior period entrepreneurs were getting credit for having done nothing and still raising 3 on 15

Scope: framed as 'I would argue'

7:40 20VC: Semil Shah on The Biggest Mistakes VCs and LPs Made Over the Last 24 Months, Why LP Churn is Coming, Core Lessons on Scaling from $1M Haystack Fund I to Today and How To Find, Win and Manage LPs as an Emerging Manager

Rob Go · Jun 23, 2023

Much of the complaint about seed pricing is that seed funds are trying to do what used to be Series A investments; pre-seed remains cheap and is the honest equivalent of the old seed round — only the labels have changed.

When they started, very proven founders would skip seed and raise a Series A directly; the same dynamic exists today under different names.

Scope: pre-seed cheapness especially holds if the founder isn't super proven

45:09 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

Ed Sim · Oct 27, 2023

The pre-seed category was created because seed investors stopped taking enough risk, and pre-seed investors have now made the same drift, which is why inception investing is needed

Each stage label has migrated toward less risk as it institutionalized, leaving the true first-round risk unserved

20:23 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

Harry Stebbings · May 6, 2022

Pre-seed no longer really exists as a distinct stage, because anyone coming out of a top company like Facebook, Twitter, Datadog or Slack can raise $3-5M on a $20M valuation instantly

Scope: applies to founders with elite-company pedigree

27:36 20VC: Why the Traditional Seed Fund Model No Longer Works, Why Multi-Stage Funds Investing at Seed Bring Signaling Risk but also Less Pressure, The One Criteria All Potential Sales Hires Need to Have and The Clear Signs of 10x Sales Hires with Jason Lemki

Harry Stebbings · May 29, 2023

Pre-seed no longer exists for pedigree founders — anyone with six-plus years at a company like Uber, Square or Twitter simply comes out and raises a $5M round

Scope: applies only to pedigree founders

30:46 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

Founders coming out of companies like Figma, Stripe or Notion do not raise $500K–$1M pre-seed rounds.

45:38 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

Ed Sim · Oct 27, 2023

The pre-seed/seed labelling has made early-stage financing needlessly complicated; the label 'pre-seed' is harmful because it presupposes a subsequent seed round and therefore another layer of dilution, which is why the best and repeat founders would rather just raise a seed round.

Pre-seed implies a seed must follow, adding a dilution layer; second- and third-time founders don't want that, and the data shows the stages have drifted (median age at pre-seed is now 1.2 years, at seed 2.7 years).

4:33 Pre seed seed labeling adds needless dilution and complexity best founders skip it

Jude Gomila · Feb 11, 2020

As more investors enter the market, firms are being pushed to game-theoretic extremes — migrating stages and inventing new categories, including new round types that sit between the existing ones

He observes USV moving from seed up to the A, new entrants pushing into pre-seed and trying to make seed the new A, and bridge rounds being rebranded as 'top-up' rounds by investors who don't lead or take a board seat

24:51 Competitive pressure drives investors to migrate stages and invent new round types

Rob Go · Jun 23, 2023 · hedged

Even founders with strong pedigree do sometimes raise reasonably priced pre-seed rounds.

He spoke to a founder yesterday with a successful exit and growth leadership at a pre-unicorn company who did a reasonably priced pre-seed, even though their seed will likely be expensive.

45:44 Pedigreed founders sometimes raise reasonably priced pre seed rounds too