The Seed Stage Gap Exists!

In my October community newsletter I wrote about the sentiment of the Seed Stage Gap. And with Pete Walker's recent publication of Carta's Q3 Data and a semi-recent X conversation this sparked with Elizabeth Yin , I wanted to share the post with an addendum at the end.

You may have heard whispers—or perhaps even felt firsthand—about the growing challenge known as the “Series A Gap.” This term refers to the widening disparity between the number of startups receiving seed funding and those securing Series A investments. Essentially, while many startups successfully raise initial seed rounds, a bottleneck occurs when they seek larger, subsequent funding. Two of my favorite pieces on this topic are by Nnamdi Iregbulem at Lightspeed and more recently by the team at Euclid Ventures.

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Here’s what we see: The Seed Gap is coming next.

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It might be a hot take, but it stands to reason that as Series A investors become more conservative, Seed investors are following suit. We're now seeing more and more post-revenue, post-product pre-seed companies struggling to get funding as caution tightens across the board.

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We believe this shift presents an asymmetric opportunity for a firm like Sidecut. Specifically, our coaching-first methodology and deep founder relationships give us unique insights, allowing us to identify and back promising ventures ahead of the curve.

We’ve already put this approach into action with several deals that we have warehoused in anticipation of our fund launch next year. While I can't comment specifically, these are companies that have shown 300% YoY growth, $500K ARR and modest 10-15x multiples (if you care about pre-seed valuations, I do!)

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By leading investment rounds and securing significant allocations—often at more favorable terms than the prevailing market rates—we’re able to punch above our weight alongside larger VCs. This strategy not only positions us for outsized returns but also strengthens our portfolio with startups that might be overlooked in the current climate.

Our confidence comes from investing in founders based on their real-time actions and decision-making processes, rather than solely on past achievements. This proactive engagement enables us to build a robust, data-driven thesis that guides our investment decisions, even as the market shifts.

But I wouldn’t call this a consensus viewpoint. For example, I had an exchange on X with Nichole from Wiscoff Ventures (see below), and she may not share the same perspective. What's more, I admire Nichole, and she's not alone in my discussions with other investors.

But at Sidecut, we see things differently. We view this new gap not as a hurdle but as an opening—a unique opportunity to invest in high-potential startups when others are stepping back.

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The venture landscape is undoubtedly facing challenges, but with challenges come opportunities. By staying true to our data-driven and founder-focused approach, we’re not just filling the gaps left by others—we’re creating value where others aren’t looking.

Epilogue: I feel seen! Last week Pete Walker from Carta posted the following observations which has validated some of my feelings with data. Really looking forward to 2025!

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