Is the VC Seed Pool Really Shrinking?

The National Venture Capital Association has its latest investment data out, and while returns are on the increase, one part of the market is apparently declining. Seed capital has been shrinking for some time as a percentage of total venture dollars under management, and that trend continues.

There are many ways to look at this, not all of which are as calamitous as the above figure suggests. For example, it could be that relatively few funds self-identify as seed funds, while they continue to do what used to be called seed financing. I have seen that in practise, with various large funds doing early-stage financings, but they would never call themselves seed funds.

Similarly, some of the slack at the seed end is being picked up by specialized angel funds, like Tech Coast Angels here in California. These folks put in more than grub stakes, thus reducing the need for larger funds to fill the gap. At the same time, goverment-sponsored funds continue to pop up, like the LSVCCs in Canada, and the SBICs here in the U.S. Both, in effect, fill the gap — while arguably crowding out private sector investors, of course.