In Q3 of 2021, I wrote an investment thesis on social capital and its impact on the pre-seed stage of venture capital, or "the key to prediction models in pre-seed venture capital". This is one post in a series of excerpts from that thesis. If you would like to see my complete thesis, please contact me to request the document.
Pre-Seed Venture Capital
Some VCs designate super early stages of venture as angel & seed. Here, I reference two together as “pre-seed”.
- The size of angel deals are growing.
2. The size of seed deals are growing.
3. Pre-seed valuations are pumping in venture capital. Outliers were causing the average valuation to skew high in Q1 2021.
Early stage investing is a high risk, high reward game
Reward for success at the angel and seed stages continues to increase, though it is also increasing at early (Series A, B) and later stages of VC.
Risk at the angel & seed stage remains highest because there is less data to predict success. Top investors at this stage have outlier (unicorn) success rates around 1%, and there have been few attempts to innovate on standard industry methods. So, VC dollars often leave angel & seed stages to be allocated at later, less risky stages. This presents an opportunity at pre-seed, and I believe that VCs who are able to seize that opportunity will lead the next wave of success in venture.
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