No-one Does a Second Seed Fund

A veteran VC made this savvy comment to me the other day:

No-one does a second seed fund.

Okay, now and then it happens, but the reality of venture investing is that most successful, professional seed investors don’t raise a second seed fund. They raise a larger fund, one from which they might do a little seed investing, but they don’t get stuck in the low fee, low return, over-distracted world of seed financing a second time.

And therein, of course, lies an opportunity or a problem, depending on your disposition.


  1. Opportunity for sure. All the later stage funds are going to need good opportunities in the future. Therefore, the seed funds serve an important purpose. We just have to find a way to make money doing it. Perhaps the model isn’t a fund at all, but some other form of organization.

  2. Brent Holliday says:

    Call Blair Garrou at DFJ Mercury in Houston and ask him… why? Why another seed fund?
    Just happy to prove that there is at least one.

  3. Brent — I actually know of a couple, which was the spark for the conversation with the aforementioned venture vet, but I still took his point. They’re darn rare critters.
    With respect to Darren’s comment about other forms of seed organizations, in essence that is what is behind accelerator models, like what Carl Weisman is doing in Seattle. The jury is very much still out on such things, and to the extent that Carl’s accelerator pans out it will be hard to know if it wasn’t the Leroy Hood connection that mattered most.

  4. Erm, I’m not at all a finance geek, but wouldn’t Seed investments give a higher return on investment, as you are giving a bit of money at the beginning of a company’s life for a big stake on it?
    Please elaborate for us newbies.

  5. Ah, if only that were true. Two answers:
    1) For various reasons, seed investors tend not to get full credit for their money. Put differently, by the time Series A investors show up and put in their usual $4mm the value of company is typically still such that your seed equity position gets crushed beyond recognizability.
    2) You need to spend money to make money. While putting up $250,000 and getting back $2,500,000 is a nice 10x return, it pales against putting in $4,000,000 and getting back 10x for $40,000,000. The former generates $500,000 to the partnership, while the latter generates $8,000,000.

  6. Ah, interesting. Thanks!