1Mby1M Virtual Accelerator Investor Forum: With Bhaskar Ghosh, Partner and CTO at 8VC (Part 4)

Sramana Mitra: There is a Series A gap. There are investors that are doing pre-Series A, but it’s a smaller pool. The Series A investors want to see a lot in place before they’re willing to write a check. How do you see this? This is not specific to your firm. I’m asking you generally as an industry observer. How do you see this resolving?

Some of the trends we are seeing is that some of the pre-seed and seed companies are exiting into companies that have raised a lot of money without trying to raise as much money themselves. They have to find some path either through exit, funding, or becoming profitable.

Bhaskar Ghosh: What you’re saying is, so many precedent deals have been done. How do they stay the course and last long enough to get funded?

Sramana Mitra: Yes, because the number of Series A investments is not moving that much.

Bhaskar Ghosh: Since we have enough capital, when we do pre-seeds and seeds, we just stay the course. We make sure that our companies are funded.

Sramana Mitra: There are so many funds that have positioned themselves as pre-seed and seed funds. They are small funds.

Bhaskar Ghosh: We see two things happening. We see larger funds, even B and C funds, coming into seeds just in terms of finding the best deals. That’s also a phenomena we are observing. As public markets go through a tough time, we expect that counter movement.

Sramana Mitra: That is not going to be able to address the issue because the issue is that the top of the funnel is very large. A lot of companies are getting started. There just isn’t enough Series A deals. The number of Series A deals happening is not at that level.

Bhaskar Ghosh: If you start a pre-seed or seed company with very little capital, you’re giving yourself limited amount of time to build something decent, have a couple of great use cases, and show a path to monetization. If you raise only $2 million to $3 million, that’s a risk that you take. It was true even before we hit the downturn. Only the good or the better ones will be able to raise the next rounds to get to a large Series A.

We have not seen that change. We think that is healthy. What we seeing change is good founders with a track record or having some sort of market credibility are able to raise larger seeds and last the course. We do feel that small seed funds often offer much more bespoke support to founders whether that is talent, go-to-market, tech strategy. Larger funds are not able to offer that.

In that context, good seed funds are able to back entrepreneurs with less capital and still get them to proof points where good funds can come in and either do a post-seed or Series A. We do not see that trend changing for good founders.

What we do see changing is Series A investors are asking harder questions today than back in Q4 2021. It is becoming less likely now that a pre-product company without use cases or pilots in production will be able to raise a large $10-$12M Series A. We also see Series A valuations coming down.

Your point is well-taken that the lack of exuberance in Series A is translating to pre-seed and seed funds having a slightly harder time. In a way, we think it’s slightly healthy. In the next two to three years, only the good pre-seed and seed companies will go on to raise healthy A’s.

This segment is part 4 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Bhaskar Ghosh, Partner and CTO at 8VC
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