David Tisch & Terrence Rohan: Biggest Misconceptions & Hardest Truths About Seed Investing | E1112

05 Feb 2024 (9 months ago)

Seed Market Disruption

The seed market is experiencing significant disruption due to several long-term trends and a recent shift in the market.
The expansion and fragmentation of both the seed and venture markets have created more opportunities for new managers and generational change.
Founders now have more power and optionality due to increased access to tools, capital, and know-how.
The shift to online and distributed venture firms has made it easier for founders to access top-tier VC firms, increasing founder optionality and accessibility.
The scale of cash that many firms have accumulated has led to a transition from a boutique high-margin business to a transactional industry with low margins, impacting the seed market.

The definition of a seed round has shifted from a $1-3 million round to a $5-8 million round, with the sub-$2 million market remaining random and exposed.
The $5 million seed round is not a new product, but it has become more accessible to founders.

Seed investing is a hard job, and there is no one who is always right.
The longer you are in the game, the more humility you have to have about how much of success is due to luck and randomness.
Seed investing involves taking risks and embracing uncertainty, rather than focusing on reasons why a company might fail.
Founders often make better investors than traditional investors due to their unique insights, networks, and ability to identify promising opportunities.

The best Founders choose investors based on relationships built over time and a history of providing value.
Box Group focuses on building long-term relationships with Founders and being consistent in their approach.
To be a founder's favorite investor, venture capitalists should prioritize building strong relationships and trust with entrepreneurs from the earliest stages.

A reserves model for follow-on investments can hurt seed investing by depressing DPI and diverting capital away from the most deserving companies.
Effective reserve allocation involves identifying and investing in companies before the market realizes their full potential.

The panelists discuss the role of secondary markets in providing liquidity to early-stage managers.
They agree that holding onto investments for the long term is generally more beneficial than selling off portions of a company too early.

The panelists believe that the seed round will always be essential for startups, as it provides the initial capital needed to get a company off the ground.
They also discuss the impact of AI on venture capital and suggest that AI may make companies more capital efficient in the long term.