Venture Capital: No Second Seed Funds

One of the wisest words anyone ever said to me about the venture business is this, "No-one raises a second seed fund".

Why? Because seeds funds are really, really hard to do, and there are really only two possible outcomes: Either it doesn’t pan out (the most likely scenario), or it works out. In either case, the fund’s founders don’t usually end with a second fund, because in the former case their investors won’t let them raise one, and in the latter case because they raise a larger fund and get out of the seed game.

I got to thinking about the preceding tonight in noticing that celebrated "new-style" VC fund Founders Fund has followed up its $50m first fund with a $220-million second fund. So much for seed? One wonders.

Related posts:

  1. No-one Does a Second Seed Fund
  2. First-Tier Venture Funds … Or Bust!
  3. Is the VC Seed Pool Really Shrinking?
  4. Few New Venture Funds
  5. The Seed (Venture Investing) Rules

Comments

  1. Matt says:

    Totally different beast. They are the Sequoia of the web – deals come to them because of the connections of the Thiel Mafia.
    Spend some time with Thiel or Nosek or hell, just sit in the waiting room overlooking the Presidio on a sunny day and watch the parade of deals that comes in the door.
    Your theory holds with the remaining 99% of the venture world (AKA the “broken investment model boys”).

  2. FredericBaud says:

    This can possibly change with things like FundCamp, an open format for seed acceleration funds that we are putting in place.
    The problem with the seed funds you describe is that amount is low, time to exit is long, which make them a loss making endeavor for general partners. Then it’s only rational for the GPs to invest their time and energy in the prospect of raising a subsequent venture fund.
    With FundCamp, the exit is scheduled to be very early, so it may become sustainable to become a GP of multiple micro-seed-funds created twice or more a year if you have a real expertise on a specific industry. You trade a bulk of cash to invest for a stream of high-added value deals.
    http://fundcamp.org

  3. mathew says:

    @1: isn’t sequoia the sequoia of the web?

  4. Marvin says:

    There is one golden rule for anyone getting a seed round – start working on your A round the minute you got your seed funding. if you are dreaming you’ll get another set of financing – you are wrong. Then again – if you work all day on your A, you can’t work on your business. I would say don’t raise seed rounds – when you get money, get plenty to it will last for 2-3 years so you can work on your business.

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