Taylor Greene: I think the major shift over the last six years since I’ve been doing this full-time is in the nomenclature. Pre-seed is really akin to what would have been a seed round or angel round 10 years ago. Typically that’s between $750,000 and a million dollars.
Ten years ago when I was raising money for my last company, our Series A was $4 million. Today, that would probably be called a seed round. Today, you’re seeing a lot of seed extensions which tend to be a $5 million round. That would have been more of a Series A ten years ago.
When you actually look at the size of the rounds and the succession of rounds being raised, I think it’s very similar in terms of the amount of capital. It usually starts with a million. Then it’s often followed by $3 million, then $5 million, and then $10 million. I just think the names are different now.
Sramana Mitra: I don’t agree with what you described here. We’ve done more than 300 of these interviews. People are writing $50,000 checks, $100,000 checks in the pre-seed bucket. There are funds that do that.
The description that you gave excludes that class of investors but that class exists. Some of them are very small funds – $20 million funds that are doing exclusively pre-seed, seed, and maybe some post-seed. I just talked to someone this morning. They are doing seed and very small Series A.
The other trend in that segment is that some of these people would exit in Series C or Series D if the financing goes that far. That’s understandable because this takes a long time. For these smaller funds, it’s not possible to do prorata if it’s a $100 million round. Business is changing somewhat.
Taylor Greene: Yes. I was looking at it more from the entrepreneur’s perspective in terms of dilution. I still think the amount being raised is about the same. I think the nomenclature is different. I think you’re right. If you look at the make up of the entities in those rounds, you wouldn’t have seen an institution investing into an angel round. You would have seen individual angels.
Sramana Mitra: That’s exactly right. That has institutionalized now.
Taylor Greene: That has changed. We do see the $50,000 checks here and there. A lot of times, it looks like an angel but it’s actually an angel who’s a scout for one of the larger funds. You have to dig into the details.
The market’s become more competitive, especially at the later stages where funds are looking to get an edge by investing into earlier rounds. One of the most prominent changes is that you do see funds popping up that focus on “pre-seed.” They’re going to angel rounds where previously you wouldn’t have seen a fund taking up half of an angel round before. It would have been mostly individuals.
I see that as more of a good thing for entrepreneurs. There’s a lot of capital out there. I don’t see it as a terrible thing for VCs. More companies are getting started and having access to capital is, by and large, a good thing for the market.
It’s just our job to properly identify those companies early and convince them that we’re the right partners. It’s still the same job for me. It’s just that there are few more institutions that come in earlier.