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State of the Seed Market in 2017

tomtunguz.com

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Re: State of the Seed Market in 2017

#21

Post by marketforlemons »

For companies which require decent tech talent to build, I have been wondering if the seed stage has become a market for lemons.

The amounts offered at the seed stage aren't even enough to cover a year's salary/RSUs/other comp for someone with a bit of skill.

The time it takes to raise the seed round isn't time spent building a business. And with that time reallocated, someone technical can probably just save the money at a job or do consulting on the side while doing their startup.

I'd love to raise money for my startup, but every time I look at the numbers, the numbers just don't add up. If I go spend time fundraising, it may or may not work out. I'll definitely be out a bunch of time, and if I succeed I'll be out a bunch of equity. But the amount I get paid for that equity is problematic, especially considering I'll be expected to work below market for a while on my startup.

So instead investors simply don't get the opportunity to invest in what what, in my obviously biased opinion, is one of the few startups that could make their portfolio work.

Re: State of the Seed Market in 2017

#22

Post by rexreed »

I'm curious as to the source of this data. While the conclusions seem to match experience -- smaller # of seed deals, higher quality deals netting more money, longer time to raise, the truth is that overall seed investing is dropping significantly. That's what I don't see here - overall numbers. Also, how is this location dependent? Tomasz is in the Silicon Valley area, and Silicon Valley will always have metrics in deal size and quantity that don't match other regions. From what I'm seeing, angel / seed rounds in places like Boston, NYC, DC, Austin, Chicago, and some other places are dropping precipitously. It's looking like a major retreat right now from investing in the highly risky startup asset class.

Re: State of the Seed Market in 2017

#23

Post by johan_larson »

I thought a seed round was historically money you raised from friends and family, and it was followed (assuming success) by an A round raised from professional investors, meaning VCs.

Has that changed? If you're raising a million from your friends, that's rather a well-heeled bunch you hang with.

Re: State of the Seed Market in 2017

#24

Post by johan_larson »

inputcoffee wrote: post #10
graycat wrote: post #7

Yes, all nice data, but $400,000 is, sorry 'bout that, no matter what it's called, is not appropriately called a seed round. Let me guess: The usual criteria are all the first technical work done, traction significant, and traction growing rapidly. That's not planting or watering seeds ; instead, that's a sapling or small tree. Indeed, for a Web site, costs can be so low that by the time there is significant traction…

What valuation (or cap) would you put on that seed?

The distinction I would like to make is whether the money comes from professional investors or amateurs. Money from friends, family, and whatnot: seed. Money from pros: A round.

But that doesn't really square with how others use the words.

Re: State of the Seed Market in 2017

#25

Post by johan_larson »

icedchai wrote: post #20
graycat wrote: post #7

Yes, all nice data, but $400,000 is, sorry 'bout that, no matter what it's called, is not appropriately called a seed round. Let me guess: The usual criteria are all the first technical work done, traction significant, and traction growing rapidly. That's not planting or watering seeds ; instead, that's a sapling or small tree. Indeed, for a Web site, costs can be so low that by the time there is significant traction…

400k will barely get you 3 people for a year (in the US.) You'll have trouble finding anyone for under 100k in this market. For those small seed rounds you describe, you're better off self funding and saving up the money yourself.

Traditionally, wasn't the seed round used to keep the founders going during the early months and years? 400k will last a group of founders for years if they are willing to live cheaply.

Of course things change once you need to hire outsiders. But that's what the A round is for.

Re: State of the Seed Market in 2017

#26

Post by mhluongo »

johan_larson wrote: post #23

I thought a seed round was historically money you raised from friends and family, and it was followed (assuming success) by an A round raised from professional investors, meaning VCs. Has that changed? If you're raising a million from your friends, that's rather a well-heeled bunch you hang with.

These days there are angels, super-angels, and early stage (seed) VCs. There's been investors been F&F and Series A for quite a while though.

Re: State of the Seed Market in 2017

#27

Post by graycat »

icedchai wrote: post #20
graycat wrote: post #7

Yes, all nice data, but $400,000 is, sorry 'bout that, no matter what it's called, is not appropriately called a seed round. Let me guess: The usual criteria are all the first technical work done, traction significant, and traction growing rapidly. That's not planting or watering seeds ; instead, that's a sapling or small tree. Indeed, for a Web site, costs can be so low that by the time there is significant traction…

400k will barely get you 3 people for a year (in the US.) You'll have trouble finding anyone for under 100k in this market. For those small seed rounds you describe, you're better off self funding and saving up the money yourself.

Right. I was assuming a sole founder and not hiring anyone. Or some dedicated co-founders doing what you suggested.

Re: State of the Seed Market in 2017

#28

Post by graycat »

swampthing wrote: post #11
graycat wrote: post #7

Yes, all nice data, but $400,000 is, sorry 'bout that, no matter what it's called, is not appropriately called a seed round. Let me guess: The usual criteria are all the first technical work done, traction significant, and traction growing rapidly. That's not planting or watering seeds ; instead, that's a sapling or small tree. Indeed, for a Web site, costs can be so low that by the time there is significant traction…

Does it really matter what it's called if everyone knows what it means? And what BoD expenses are you talking about?

A BoD usually means a Delaware C corporation, and that usually has some lawyer expenses. May have some founder employee agreements for some more lawyer expenses. And there may be insurance for the board members, e.g., as at

https://en.wikipedia.org/wiki/Directors_and_officers_liabili...

But really what I meant was that, when there is a BoD meeting, say, monthly or quarterly, the members need funds for travel, food, and lodging, and usually the company pays for those. Just one BoD member flying first class and staying at a high end hotel once a month could eat into a $20,000 seed round in a hurry.

Or, one or a few co-founders, living cheaply, on their own savings, each with a $1000 computer, typing in software can be cheap and where a seed round of $20,000 to $40,000 can do well for Internet fees, publicity, maybe cloud fees. That's what I had in mind.

Re: State of the Seed Market in 2017

#29

Post by graycat »

ccvannorman wrote: post #16
graycat wrote: post #7

Yes, all nice data, but $400,000 is, sorry 'bout that, no matter what it's called, is not appropriately called a seed round. Let me guess: The usual criteria are all the first technical work done, traction significant, and traction growing rapidly. That's not planting or watering seeds ; instead, that's a sapling or small tree. Indeed, for a Web site, costs can be so low that by the time there is significant traction…

The terminology has been butchered, not least because of VCs wanting to get into earlier stage and changing how they deal with companies. I've heard pre-seed as well, but realistically if you don't have significant progress, the days of paper-napkin idea => investment are pretty much over AFAIK.

IMHO, for professional investors, the "significant progress* is judged by traction as I described. Then, for a Web site startup, traction means users and ad revenue, and quickly a sole founder is nicely profitable with cash enough for organic growth and no equity funding needed.

Re: State of the Seed Market in 2017

#30

Post by icedchai »

graycat wrote: post #28
swampthing wrote: post #11

Earlier quoted context omitted.

Does it really matter what it's called if everyone knows what it means? And what BoD expenses are you talking about?

A BoD usually means a Delaware C corporation, and that usually has some lawyer expenses. May have some founder employee agreements for some more lawyer expenses. And there may be insurance for the board members, e.g., as at https://en.wikipedia.org/wiki/Directors_and_officers_liabili... But really what I meant was that, when there is a BoD meeting, say, monthly or quarterly, the members need funds for travel, food, a…

For amounts that low, you're having meetings online, period. Nobody is flying out to check on their 20k seed investment. It's not even worth their time.
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