A New Gap in the VC Market

I’ve been talking to a lot of seed stage investors, especially in New York, and it’s becoming increasingly hard to find professional angels or venture capitalists willing to participate in a $500k round.

I’ve asked a lot of those “late seed stage” investors which angels and “early seed” investors they respect and gets deals from. A lot of them have drawn blanks. “Shana Fisher,” “Charlie O’Donnell,” “Box Group” are some of the ones I hear a lot — but it’s hard to go much further than that.

Most of the best VC’s have moved upstream to fill the “late seed” gap. It’s an attractive market to fill because VC’s can write larger checks at those stages and thus raise larger funds (read: earn higher management fees). A lot of the professional angels in New York have gone on to raise their own funds and have also left the “early seed” market. Some of the other well known angels have just waited to participate in later rounds alongside VC firms they are friendly with.

It seems the best VC’s are raising larger funds because larger funds mean better economics. This creates negative selection bias for those still writing really small and really early checks. In some cases (not all!) it means the people still writing very early checks are new, or have not been able to raise larger funds. Sadly, only in rare cases is it a reflection of discipline.

There are some well respected investors who have continued to be active in early seed deals. High Line VP, Metamorphic, Great Oaks, Notation Capital, Brooklyn Bridge Ventures and Box Group are all awesome options for an early $500k-$750k round. But it feels like most other institutional funds don’t want to participate in rounds less than $1mm.

Accelerators have filled much of the gap — and they’ve helped get founders further along so raising a $1m+ seed round has been feasible. But it’s getting harder and harder to find smart money in really early rounds. The smartest people have, in many cases, moved upstream.

[5'9", ~170 lbs, male, New York, NY]. I blog about investing. And usually about things I’ve learned the hard way. Opinions are my own, not CoVenture’s

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