
State of the Seed Market in 2017 - CrocodileStreet
http://tomtunguz.com/five-charts-seed-market-2017/
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padobson
I wonder if the increase of size of seed round corresponds to startups waiting
to seek funding until they are more mature.

The second seed round, makes me even more suspicious of this: are we simply
renaming A and B rounds to seed 1 and seed 2 rounds? The increased size of
these rounds would seem to imply yes.

Furthermore, I wonder about the lack of stigma in a second seed round. It
seems like this would happen a lot if the founders didn't raise as much as
they needed, and investors felt they could get favorable terms, perhaps more
favorable than the first round of investors - which could mean the exact same
terms, but operating on additional months of performance data.

To me, it seems like most of the changes in the State of the Seed Industry are
about definitions and semantics.

~~~
jwilliams
I think the trend of Seed Rounds being the "old" Series A seems true (even by
the comments here).

The other element in the landscape is the huge increase in accelerators,
AngelList and the like. There are now a lot of options to get that first
$100-200k to prove out a business idea.

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AstroChimpHam
I have a number of acquaintances in the situation where they tried to go out
and raise a proper Bay Area seed of $1-1.5m, got told they needed more
traction, and wound up giving up part of the way through, stopping the round
at ~$300k and calling it an angel. Then, traction appears and they come back
to finish that initial seed round. Every time I've heard of this happening,
the issue was investors becoming more careful with their money rather than
founders underestimating how much money they'd need.

Small sample size and all, but if this is the way things are going, it'd be a
good thing and force more founders to focus on metrics that matter early.

~~~
nostrademons
I've heard the same, or founders that (barely) raise their target seed
amounts, but then traction appears and suddenly everyone wants to invest in a
follow-on seed. Again, sign of a healthy market. It's not 2013/2014, when it
seemed like anyone could raise on pedigree or potential, but capital is
available for startups who hit their metrics.

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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.

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swanson
OT: From the headline, I wasn't sure if this was about torrents, GMO crops, or
venture capital until clicking. Chalk it up to HN's diverse interests :)

~~~
dougmany
Me too. I thought I was going to be reading about tulip bulbs.

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3pt14159
If anecdotes can be trusted, I can explain why this is happening because it's
happening to a close friend of mine:

They have a really good idea for a startup, but it's a lot of work to get it
to the point where they can start charging for it, after investing 6 months of
time they have a prototype and they go to raise a seed (last time one of them
did was in 2011) and are basically told that even though the idea is great and
the team is strong, a pre-revenue seed is way harder these days.

So they quietly raise $100k to get them forward calling it an "Angel" round,
with the idea to raise a $1m to $1.5m seed later in the year, which you can
call a second seed if you want to. If they succeed, the average seed amount
goes up, if they fail their smaller seed never happens.

I think investors have learned that revenue is worth twice the valuation and
family / angel / incubator money is filling in the earlier stage.

Overall I think it's probably for the better, provided that everyone
understands that it's happening.

~~~
hkmurakami
Sounds like we're back to the old paradigm where angel rounds were followed by
A rounds after the idea was proven and traction was substantiated.

Aka 2015 seed round = 90's A round, as many have observed already.

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guelo
To me the the big story here is that seed rounds fell 27.6% last year.

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bb01100100
Whatever. In my part of the world the seed market is excellent. I recently
planted out 9 pumpkin seedlings, which are doing well thanks to the recent
rain.

I've also got about 30 capsicum seedlings and two lychees, which are coming
along nicely. That was a substantial seed round, Series B. Recently I added to
my seed empire by planting three avocado pips - they will take some time to
grow. I think that makes them Series C.

These are all heirloom and organic (actually, veganic) and will reduce my food
bill by a tangible amount, which is great because my investors are demanding
and hungry for more. Where I live, organic produce is exorbitant.

Of course should the seed market tank, I've got a hedge in that my day job is
primarily focused on designing distributed data pipelines and data-related
architecture.

~~~
blacksmythe
Cute tongue in cheek reply.

    
    
      >> planting three avocado pips

If you search on "planting avocado seeds", the first page of results are on
how to plant them, with little discussion of why not to plant them.

“Ungrafted” trees (like those grown inside from seeds) rarely produce fruit.
In order to have an avocado tree that produces fruit, one must graft the
seedling."

    
    
        https://www.willsavocados.com/index.php/grow-avocado-tree

~~~
bb01100100
Thanks for that link.

I'm taking a portfolio approach, whereby I'll average in over time until I'm
holding about 20 or so plants. Worst case I'll have some lovely shade and
beautiful green trees.

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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.

~~~
mhluongo
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.

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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.

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inputcoffee
Theory: the size of seed rounds is determined by the magnitude of sales that
can be generated without an investment.

So if a new technology is introduced to make small teams or single founders
very productive, then the size of seed rounds will go up.

(Assuming that the team needs money at some point for something.)

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graycat
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, there is plenty of ad revenue for rapid organic growth
and no equity investment needed.

A useful _seed_ round could be $50,000 or even $20,000 except for the legal
and BoD expenses!

~~~
icedchai
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.

~~~
johan_larson
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.

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abalone
There's no source cited for the data. Is it only deals Redpoint participated
in? Take it with a grain of salt.

