Let me preface: over-valued markets hurt all investors.
But they hurt seed investors less than they hurt series A investors. The reason?
Seed stage investing, in many cases, is about finding deals. The game, in many ways, is about figuring out how to be the first call of an entrepreneur about to start a new business. And in seed stage investing it’s foreseeable that you got into a deal because you’re one of the only firms that saw it/or that you saw it first/or that despite there being no traction you had a unique insight that no one else had.
In Series A investing the above is all possible, but less commonly true. I think in many cases, Series A investing is more about winning deals as opposed to finding deals.
Why? Because by the time a company is raising its series A, it is common that many of the best Series A funds have already been tracking it. These larger funds have analysts who spend all of their time tracking the seed companies getting funded to make sure they didn’t “miss” anything.
A great seed deal has maybe pitched 15% of the best seed firms. But often, the best series A deals have pitched over 50% of the best series A funds.
If you’re a series A firm, looking at a series A deal, very rarely (unless you’re already invested) are you seeing a deal that hasn’t been seen by anyone else.
And there are two ways to win deals:
Firms that have great brands often have great brands because they add great value, proven by a track record of successful exits. Firms like: Benchmark, Sequoia, A16Z, Bessemer, NEA, Accel, USV, Thrive and maybe 3–5 others win on brand. Every other firm, in many cases, must win on price. And that is why for those series A firms, over-valued markets hurt them the most.
These are generalizations, but in my opinion they are accurate ones.