This is a lightly redacted version of an email I sent to my limited partners at Precursor describing something that I've been feeling for a while but was hard for me to describe until now.
Interesting take - I think your point around the players in the market at the very early stage have also changed - but not just in quantity, but quality. I recently passed on what I thought was a very compelling idea / plan / founders, but passed because of valuation - a pre-launch company raising a $5mm round at a $25mm valuation, and apparently with a $2mm lead investor that has no expertise in consumer at all (and this was a CPG business). I wish founders could be more selective on who they welcome to the cap table, and not just the highest valuation - it hurts all of us when that happens.
Well said Charles. Names may change, but economics remain the same. Who are the firms that are able to get into the best companies at the best valuations? That's the key to consistent performance and why we're bullish on backing Pre-Seed Funds at TGN.
I don't think it's only "do I have the right strategy to catch the outliers".
There's something in the depth of thinking, in the small things you do when no one is watching, in constant flow of privileged information and comparing your strategy with that and the market all the time.
Amd I read 2/3 just from this letter.
What I would also consider is going global, where the rounds are still quite what you describe in 2014. And then importing these startups in The Valley.
Or going broader in the US market. Maybe there's a non-immigrant non-IVY league team somewhere in the depths of US?
That would mean shifting into more teaching than picking, at least in the beginning.
Of course, many have tried, so not that it's unique and that it doesn't have challenges.
Once a ten million dollar round can still be called pre-seed, the label is describing the raise. The fifteen to twenty five companies that carry a fund are the constraint that is left. Enterprise AI buyers hit a version of this a couple of years ago. Picking a foundation provider used to be a model comparison against a price sheet, and now it is a multi-year commitment to whoever will let you build on top of them. Whatever gets scarce in a market stops being priced and starts being allocated, and allocation is much harder to compete against.
Love this perspective on how the nomenclature has evolved. One thing I'm curious about is how much of this shift is also a function of fund dynamics rather than just founder signaling. As later-stage valuations expanded (and now with the AI market creating a premium for a small set of companies), we've seen more multi-stage firms move earlier in search of ownership. Do you think that competitive pressure from larger funds entering pre-seed/seed has materially contributed to the expansion of what we now call a "pre-seed" round, or is founder signaling still the dominant driver?
Well said Charles. Names may change, but economics remain the same. Who are the firms that are able to get into the best companies at the best valuations? That's the key to consistent performance and why we're bullish on backing Pre-Seed Funds at TGN.
Interesting take - I think your point around the players in the market at the very early stage have also changed - but not just in quantity, but quality. I recently passed on what I thought was a very compelling idea / plan / founders, but passed because of valuation - a pre-launch company raising a $5mm round at a $25mm valuation, and apparently with a $2mm lead investor that has no expertise in consumer at all (and this was a CPG business). I wish founders could be more selective on who they welcome to the cap table, and not just the highest valuation - it hurts all of us when that happens.
Would you be so kind to take a look at what I am building. I am a founder.
Well said Charles. Names may change, but economics remain the same. Who are the firms that are able to get into the best companies at the best valuations? That's the key to consistent performance and why we're bullish on backing Pre-Seed Funds at TGN.
Excellent article.
I don't think it's only "do I have the right strategy to catch the outliers".
There's something in the depth of thinking, in the small things you do when no one is watching, in constant flow of privileged information and comparing your strategy with that and the market all the time.
Amd I read 2/3 just from this letter.
What I would also consider is going global, where the rounds are still quite what you describe in 2014. And then importing these startups in The Valley.
Or going broader in the US market. Maybe there's a non-immigrant non-IVY league team somewhere in the depths of US?
That would mean shifting into more teaching than picking, at least in the beginning.
Of course, many have tried, so not that it's unique and that it doesn't have challenges.
Once a ten million dollar round can still be called pre-seed, the label is describing the raise. The fifteen to twenty five companies that carry a fund are the constraint that is left. Enterprise AI buyers hit a version of this a couple of years ago. Picking a foundation provider used to be a model comparison against a price sheet, and now it is a multi-year commitment to whoever will let you build on top of them. Whatever gets scarce in a market stops being priced and starts being allocated, and allocation is much harder to compete against.
Hello Sharad, would you be so kind to take a look at what I am building. I am a start up founder
Love this perspective on how the nomenclature has evolved. One thing I'm curious about is how much of this shift is also a function of fund dynamics rather than just founder signaling. As later-stage valuations expanded (and now with the AI market creating a premium for a small set of companies), we've seen more multi-stage firms move earlier in search of ownership. Do you think that competitive pressure from larger funds entering pre-seed/seed has materially contributed to the expansion of what we now call a "pre-seed" round, or is founder signaling still the dominant driver?
I am a founder and I will appreciate you taking a look at what we are building. I would love to connect. I sent a DM. Thank you
"pre-seed" went from <$1M to $10M+ and now it just means "the round before the round I actually want."
Yes
Hello Charles, would you be so kind to take a look at what I am building?
Well said Charles. Names may change, but economics remain the same. Who are the firms that are able to get into the best companies at the best valuations? That's the key to consistent performance and why we're bullish on backing Pre-Seed Funds at TGN.
Excellent article.