Seeding the Future: Trends in Seed Investing
Tips and tricks for finding & investing in the next potential unicorn at the seed stage
Our “Seeding the Future” series explores trends, opportunities, and companies from the seed and pre-seed venture world. This is the investment focus of AVG’s newest Basecamp Fund.
The fund closes at the end of December! Click below to learn more.
Meet Basecamp’s Managing Partners
AVG’s Basecamp Fund is led by four full-time Managing Partners, based in three key venture hubs (San Francisco, NYC, and Chicago). In this video, our MPs introduce themselves and discuss their approach to sourcing and evaluating seed-stage deals.
See video policy below.
Trends in Seed Investing
To help bring to life the opportunities and challenges in seed investing, as well as AVG’s unique approach and assets, we interviewed our Basecamp team. The team includes four full-time Managing Partners, based in three key venture hubs (San Francisco, NYC, and Chicago), plus four other full-time Principals and Analysts.
Today’s discussion with our four MPs focuses on current trends they’re seeing as they source pre-seed and seed stage deals.
Catherine Lu (San Francisco)
Catherine was most recently Senior Principal at Spike Ventures, AVG’s fund for the Stanford community. Previously, she was Director of Product at DataVisor (backed by NEA and Sequoia), which she helped grow from <$1M to $8M+ in ARR.
What has been the impact of COVID on companies?
Catherine: Some companies are thriving in COVID market conditions, while others are struggling. Hospitality, for example, or even certain parts of real estate are lagging, while others are booming as a result of the fact that people are working, learning, or simply staying more at home. In terms of the dollars, the venture capital money is still there and funds are still actively deploying capital. And if you look at the top 1% of companies that have a good narrative in COVID times, there’s still a lot of competition for them. Obviously, those are the ones that we’re fighting to get into as well.
Matt Scott (NYC)
Prior to Basecamp, Matt was a founder and operator of multiple venture-backed businesses, including Integral Ad Science (acquired by Vista Equity Partners). Previously, Matt was a member of the corporate venture practice at Nike and an investor at Coriolis Ventures.
How are deal trends influencing your portfolio choices?
Matt: There are certainly a number of categories that are more relevant than they’ve ever been: future of work, edtech, e-commerce, remote learning, remote collaboration, fintech, insurance. That said, we’re generalists, not a thematically or thesis-driven fund. I think that’s critical to identifying or partnering with the best entrepreneurs, regardless of their sector. If you’re a thesis-driven fund, you’re actually defining what you think the future will be. To me, that’s the job of entrepreneurs. On the flip side, our job is to evaluate those deals and terms to make sure that we feel like they are investable and can generate the returns that we want to deliver to our investors.
Andrea Funsten (San Francisco)
Prior to Basecamp, Andrea was an investor at Fika Ventures and Expa, the venture studio started by the founder of Uber. She previously worked on the other side of the table operating at technology companies both large and small.
What are some trends in the seed investing category that you’re seeing?
Andrea: Two interesting trends I have seen are (a) increased sizes of seed rounds and valuations, and (b) the rise of the microfund and angel-operator investor.
To the first point, I am seeing the size of seed rounds increase in conjunction with higher valuations. In this past year I have seen Seed rounds swell to around ~$5M on average, when just a few years ago that would have been considered a Series A. “Seed” used to describe a company at the earliest stages, sometimes just in the idea phase, pre-traction. Now, it’s expected that a Seed company has a solid 3-6 months of customer traction or data before going out to raise. Pre-seed has taken its place and is truly the first round of capital when companies can raise money without having customer usage.
To the second trend, I’m noting an exponential growth in the number of microfunds, which are typically smaller in size and deployment time. Rather than a typical $50M fund deployed over 3-5 years, a microfund is around ~$5M and deployed over about one year. Many microfunds have been started by angel-operators — folks who also have a full-time gig as an executive or C-level at a tech company. More and more, early stage founders are attracted to working with investors who have relevant and real-time business operation experience. One advantage we have at Basecamp is that our team consists primarily of former startup founders.
Wayne Moore (Chicago)
Wayne was most recently a founding partner at Purple Arch Ventures, AVG’s fund for the Northwestern community. Before joining AVG, he was an executive on the global content acquisition team at Netflix. Wayne is also a Kauffman Fellow.
What are you seeing, Wayne?
Wayne: To add a bit to what Andrea is saying, in 2012 there were a few dozen seed stage funds; now there are around 1,200. With the proliferation of microfunds, solo-capitalist, and multi-stage funds writing larger seed checks, it’s more competitive and expensive to get into the really attractive deals. Additionally, you are starting to see some of the coastal firms competing more for deals in non-traditional markets like the Midwest and other regional innovation hubs such as Austin, Boulder, and Atlanta.
Another trend that I’m noting, which I think will play out over the next five to ten years, is an increasing interest in diversity and inclusion. There are a lot more people of color managing funds who are interested not only in returns but in funding diverse entrepreneurs. Venture firms and major corporations alike have committed capital and resources to diversity in tech, and I’m excited to see how things take shape.