Pareto Guide: Types of Seed Investors

by Hari Raghavan in August 11th, 2020

In the context of startups, ‘seed capital’, ‘seed funding’ or ‘seed money’ are terms that are getting more and more familiar to the casual audience. Seed stage funding or seed funding is a very early investment which aims at helping a business grow and generate its own capital. Very often, investors get equity stake in exchange for the capital invested. The first step on the path of seed funding is to understand the different types of seed investors or potential seed investors as there are multiple sources where one can secure aid from.

1. The Angel Coffee Check: This type of seed investment comes from Angel Investors; they’ll typically have a technologist’s background, be a former founder who has exited, a former tech exec, a former VC, etc. They’re investing their own capital, so they can move quickly, and often make gut decisions based on an “aha” moment — based on meeting you, a demo of the product, etc. The sum total of what they’re hearing has to click. They’re usually not full-time angels; they might be active entrepreneurs or retired full-time, but advise companies, venture firms, etc. The former bucket here would probably have considered raising an Angel Fund but haven’t had the track record of sinking the time in to do so yet.

— Typical checks are $5-50K

— These guys are sometimes are “scouts” for larger venture firms (a model pioneered during this last decade by Sequoia)

— Given the small dollar amounts, they shouldn’t be asking for a ton of information; one conversation + perhaps a follow-up question or two is reasonable. If they ask for a ton of deeper diligence, they are probably a Cinderblock (see below).

 

2. The Super Angel: The Super Angel is similar to an Angel in a lot of ways, but they’re really well-known and/or really, really good. They’ve been doing this for a decade or longer; they have clear theses or ideas that have worked for them in the past. In general, they’ll cut right to the chase, quickly “get” everything about you and your company, and often have as high a bar as a venture fund. In fact, they could go raise a venture fund in a heartbeat, but they don’t want to deal with LPs (reporting, operating agreements, etc.).

— Well-known angels (Naval Ravikant, Aaron Levie, Elad Gil, Ron Conway, Scott Belsky, etc.) all fall in this bucket.

— Typical checks are $25-250K

 

3. Angel Funds: These are Pre-Seed and Angel investors who have probably been angel investing for a while, but haven’t amassed enough experience and/or network to act as Super Angels quite yet. They have excellent networks, are often current or recent entrepreneurs, and tend to go out of their way to be helpful. These angels are often looking to bolster their networks, credibility, track record, and possibly build towards raising a venture fund in the future. Their LPs tend to be other entrepreneurs, VCs, etc. so it’s a very ecosystem-driven effort.

— Recent prominent examples include Ryan Hoover’s Weekend Fund, Niv Dror’s Shrug Capital, Brianne Kimmel’s Work Life Fund, Todd & Rahul’s Angel Fund, Jeff Morris’ Chapter One, etc.

— The rise in these kinds of funds has led to them being branded Micro VCs, but we’ve chosen to call them “Angel Funds” rather than VC funds because they’re almost never backed by institutional LPs (family offices, foundations/endowments, multi-asset managers, etc.)

— Typical checks are $25-250K

— Typical fund size is $2M to $20M

 

4. Pre-Seed / Early-Seed VC Funds: These are often supersized angel funds; but the main difference is that because their check sizes are $250K and up, they can (and hence usually do) lead a Pre-Seed Round or can co-lead a Seed Round. They run a similar process to most VCs, except they usually only have 1-2 General Partners, so their process can be a lot quicker.

— Examples include Bloomberg Beta, Lachy Groom’s Fund, Tuesday Capital, Precursor Ventures, etc.

— Typical checks are $100K to $1M checks

— Typical fund size is $10M to $50M

 

5. Seed / A VC Funds: Despite being large funds by any standard, many of the funds in 2020 that focus (exclusively) on Seed / A checks tend to be firms that are around a decade old. They usually, but not always: lead rounds, take a board seat, close preferred rounds, play an active role, etc. In order to effectively go toe-to-toe at every stage with the “traditional” VC funds, these firms often also raise “growth funds” to continue investing in their early successes as they grow.

— Prominent examples include SignalFire, Felicis, Floodgate, Uncork, Spark, etc.

— Typical checks are $1M to $10M

— Typical fund size is $100M to $250M

— Growth fund size is $100 to $500M

Here is a table for easy inspection of the differences among the aforementioned kinds of seed investors: 

When looking for seed-stage money, startup founders need to make sure that their expectations are adaptable, not rigid. Seed funding varies from investor to investor and from sector to sector. As always the investor’s funding capacity, sector expertise, portfolio diversification or alignment — depending on the investor’s goals — and influence in the industry are key factors to consider when selecting an investor for the seed funding stage.


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