Why can't more founders find pre-seed investors? Mostly because pre-seed doesn't exist in many places. Let's start with some definitions, since they can be tricky. In the data below, we defined Angel and Pre-Seed as: • Angel: Rounds on SAFEs or Notes under $500K raised • Pre-Seed: Rounds on SAFEs or Notes $500K-$2.5M raised It would seem logical that up-and-coming ecosystems (so not the Bay, NYC, etc) would start with angel and pre-seed checks and then gradually grow into seed, Series A, etc. But our data seems to suggest that many venture ecosystems begin with seed investors and then grow "middle out" (shoutout to HBO's Silicon Valley) into both pre-seed and later stages. The chart below shows the number of metro areas (defined by the current metropolitan statistical area definition in the census) that had at least 10 rounds in a given stage over the last 3 years on Carta. 𝗢𝗯𝘃𝗶𝗼𝘂𝘀 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆: 𝗧𝗵𝗲𝗿𝗲 𝗮𝗿𝗲 𝗺𝗼𝗿𝗲 𝗺𝗲𝘁𝗿𝗼 𝗮𝗿𝗲𝗮𝘀 𝘄𝗶𝘁𝗵 𝗯𝘂𝗱𝗱𝗶𝗻𝗴 𝗦𝗲𝗲𝗱 𝗲𝗰𝗼𝘀𝘆𝘀𝘁𝗲𝗺𝘀 𝘁𝗵𝗮𝗻 𝗮𝗻𝘆 𝗼𝘁𝗵𝗲𝗿 𝘀𝘁𝗮𝗴𝗲 But why does this happen? Wouldn't you expect the smallest rounds to become more common first in a new city? Actually no. The distinction has to do with the level of interest in venture from the angel community, typically individual high net worth folks. Basically - what do rich people do with their money in a given location? In Silicon Valley, it feels like everyone you meet is an angel investor of some kind. They mostly made their wealth in tech (big or little) and are naturally clued in to angel as a route not only for wealth generation but to "stay in the loop" on the latest tech. That dynamic is missing from a lot of other places across the country. So dedicated seed funds pop up in less-mature ecosystems 𝗯𝗲𝗳𝗼𝗿𝗲 a mass of angels exists. I think these differences in risk appetite account for a lot of the frustration some founders feel about "pre-seed investors" who are looking for seed-round traction. Outside of a couple places, pre-seed and angel actually remains pretty undefined. So - if you want your local venture ecosystem to thrive, it might be worth exploring ways to increase the total number of angels in your area 🙏 Or perhaps the wave of bootstrapping will make this concern moot? I kinda doubt it. Here's to the pre-seed investors out there writing real first money in! #startups #venturecapital #preseed #seed #fundraising #founders More data from Carta out every Thursday in our Data Minute newsletter. Subscribe at link in graphic!
Michael Ho
1w
In your definition does Pre-Seed = Institutional VC or could it also be rounds on SAFEs or Notes $500K-$2.5M filled by angels?
Mike Wilkes
1w
Don’t sleep on early stage government grants as a funding option. I manage a non-dilutive fund in McKinney tx, $50-200k for preseed and seed. We want the company to create local jobs
Zaz Floreani
1w
Peter Walker QQ - can you share what metros call into each of the four regions?
Cash Allred
1w
This happens (even mature ecosystems) because VCs in emerging funds who started out doing pre-seed almost always move up to seed once they have a chance to raise larger funds. Write bigger checks, generate more AUM fees, invest in the same number of companies. Combine that with Series A funds who dipped lower opportunistically to justify their own increase in AUM and you get a ton of rounds at Seed that don't happen at Pre-Seed.
Haley Bryant
1w
I have been surprised to talk with other pre-seed investors who think that Hustle Fund invests at "pre" pre seed...this aligns with Charles Hudson's observations on what is actually happening at this stage https://chudson.substack.com/p/the-changing-nature-of-pre-seed-syndication
Mark F.
1w
What is needed for more angel investment is more success of companies in that market. So as companies exit, the hope is the entrepreneurs re-invest back into the community. So it’s sort of a “which came first the chicken or the egg scenario” as without the angel/pre-seed, less companies can start and then less of a chance for exits. It’s why it’s so hard for markets to grow without the volume of startup capital of markets like SF and NY.
Paul Lundin
1w
Two things worth noting here. First there are a lot of bad investors who prey on unconnected or desperate founders to put really bad terms in place. This isn't talked about enough outside of SV, but it is super common. Second a lot of investors outside of the core startup markets don't like or have the scale to hit velocity needed for early stage to work. You don't do 1 pre-seed deal, you do 10. That means you need to listen to 1000 pitches? Vet 75? Deeply dive in on 20? Hard to do that if you are a 3-5 person shop with a small fund.
So appreciative of the Pre-Seed work Groove Capital is doing in MN not only through their own fund but cultivating new Angels! Without there support - capital and connections - no way we're at where we are today! Certain the same is true for a lot of other startups out there too!
Matt Shoss
1w
Great write up. Proud to be one of those Pre-Seed VC’s.
Build, buy, and back companies to create meaningful returns.
1wThis is why Fireroad decided that our first fund needed to be a pre-seed fund. Worth noting, in addition to the commentary above, is that the reason there aren't more doing it in these nascent ecosystems is because it's friggin' hard! It's hard to convince LPs to back super early funds in more unproven ecosystems (ask me how I know 🤣). It's hard to find and vet early stage companies, which are inherently the most risky. And, once you have a portfolio, it requires tons of work to help them. Pre-seed investing is not passive, which is why it's helpful to have GP's with hands on company building experience in the 0-1 stage (but they also have to be willing to roll up their sleeves and help).