There's a Difference Between Pre-Seed and Seed Stage VC Firms, and Folks are Misleading You About It.

This one may cause a bit of controversy.

So I'd imagine that we all agree that there is a place for $500,000 checks. $500K to say, $1.5M rounds. Founders who are either pre-product, pre-revenue, or generally in various stages of just getting started on their company. The VERY beginning of a decade+ of life's work. It's a sweet spot in 2023. It's somewhere within the realm of enough money to get you 12-24 months of runway, hire a couple folks, and A/B test your idea to enough product market fit for the next stage or tranche. More often than not, you can prove whether this is something you want to keep doing - a recipe you want to keep working on.

You'll be giving up some ownership in your company - 5-15% or so. Maybe a bit more, maybe a bit less. Depends on a lot of factors - but either way treat the money coming in as a partner or co-founder of sorts alongside you.

Let's call this round a PRE-SEED round of financing. This is an important pin to place here. Let's say it again, $500,000 to $1,500,000 is a PRE-SEED round of financing. Earliest stage of potential institutional financing. Comes right after FFF (friends, family, and fools) round, if you did one of those.

So if we all agree this is pre-seed in 2023, then we can stop right there.

But we don't all agree that is pre-seed. There are a lot of VC firms in the US right now that are marketing themselves as pre-seed that are not, in my opinion, actually pre-seed VC firms.

Rather, they are writing $2M checks and calling it pre-seed still. I know it may seem like it's nitpicking, but it's not. A $2-$4M round (especially outside of the Valley) is not a pre-seed round. It's a SEED round. A $2-4M round is a different strategy, a different stage. If you were to give a pre-seed company a seed stage check, you'd be foie gras duck'ing the startup and founders. Dilution implications aside (you can always monkey with the valuation), that much money changes the way a company hires, accelerates, and behaves, for better or for worse.

I believe that too much money too early leads to a smaller chance of power law success in a technology startup.

Runway is great, and no one, including a business, should "starve" - it's not ideal to run a race with a dearth of calories. But at the same time, you can't win if you're fat and untrained. Too big a check causes that, in my opinion.

So the firms that are cutting $2M+ checks and calling themselves pre-seed VC firms are being a bit disingenuous IMO. I know, I know, shots fired! I have a lot of friends and colleagues at these firms. I hope I'm not offending anyone. I genuinely think that they don't mean anything by it. It's a marketing thing. Deal flow at the earliest stages is important to track. Maybe they used to cut pre-seed checks, but given the inflation of the market in the past 3 years and the ever-growing AUM and fund sizes, these "once pre-seed" stage VC firms now have to cut larger checks to make their model work. They have to write $2M, not $500K. Can't be avoided when your fund has benefitted from the success of the VC asset class and is now a $200M fund, not a $100M fund.

So now you're a SEED stage firm masquerading as a pre-seed one. It's confusing and bad for founders outcomes, IMO.

There's nothing evil about all of it - it's just that there's a coalition of these firms that have unionized around messaging that "pre-seed is just the new seed and round names don't matter" and that they are all stages and everything to everyone. That $2M checks are semantically equivalent to $500K checks. Well they aren't. They can't be. Just like you're not a pre-seed stage firm any more. So why market yourself as one? (hint: the answer is deal flow)

There's a place for $500K checks. A large, important, vital-to-the-ecosystem one. And all of the VC firms that are cutting them should rally around it and call themselves what they are: real pre-seed stage VC firms. I believe that this clarification and messaging to founders will benefit the ecosystem at large and create a distinction in a place where the lines have blurred. Interested to hear your thoughts and where my thinking is wrong on the matter.