Thoughts on Pre-Seed / Genesis Rounds

Over a year ago, I wrote a post describing what I was seeing happening in the early stage financing market, especially as it pertained to what I call “genesis rounds“.  Today, genesis rounds or “pre-seeds” are fairly common nomenclature, and in fact, some folks are forming funds specifically targeting these types of opportunities (like my friend Nick Chirls and his partner Alex Lines who recently announced the launch of Notation Capital).

This has led me to quickly take a look at our own investing activity to make sense of how we think about these sorts of rounds. If I look back on the 10 investments we made in 2014:

3 had prior pre-seed rounds before we invested

1 was an extension to a prior seed round

3 were bootstrapped to seed  (so the founder essentially provided the pre-seed through their own capital or cash flow of their business)

3 were genesis stage but were larger institutional seed rounds

Some thoughts and observations on these:

  • The 3 companies that had prior pre-seed rounds were ones that we did not see at genesis. I think of the 3, we probably would have invested in 2 at the pre-seed round.
  • The 3 genesis stage companies were very early, pre-product companies that raised capital very early on.  Two of these companies started out as “genesis rounds” but because of investor demand, ended up looking more like institutional seeds.  This is why I consider them “genesis stage” companies that raised institutional seed rounds.
  • We have been more likely to invest at the genesis stage when the founders have relatively more experience.
  • We tend to think of pre-seeds and normal seeds the same way.  I like to say we are a “one product company”.  Even if we are investing at the genesis stage, we treat every investment as a full-scale investment that takes up a full slot of partner time.  This means that we would end up saying “no” to a lot of companies (regardless of stage) unless we have very high conviction around the team and the thesis around the product and go-to-market.
  • I’ve always been perplexed by seed investors that don’t invest early.  The rise of pre-seed focused funds shows that there is a market gap around these opportunities, and I’m glad to see good investors trying to capitalize on this.  It’s great for founders, and will keep seed investors honest.  If seed investors want to hang back and invest later, what will happen is that some of the best pre-seed companies will actually make so much progress on their small dollars that they will skip their seeds altogether and raise a larger series A next.  Suddenly, some seed investors will find themselves stuck between true early stage investors and life-cycle VC’s .
  • We don’t think of ourselves as a seed fund or pre-seed fund.  We try to invest in the best companies we can, as early as we can, with as much conviction as we can.

Rob Go

Thanks for reading! Here’s a quick background on who I am:
1. My name is Rob, I live in Lexington, MA
2. I’m married and have two young daughters. My wife and I met in college at Duke University – Go Blue Devils!
3. We really love our church in Arlington, MA. It’s called Highrock and it’s a wonderful and vibrant community.  Email me if you want to visit!
4. I grew up in the Philippines (ages 0-9) and Hong Kong (ages 9-17).
5. I am a cofounder of NextView Ventures, a seed stage investment firm focused on internet enabled innovation. I try to spend as much time as possible working with entrepreneurs and investing in businesses that are trying to solve important problems for everyday people.  
6. The best way to reach me is by email: rob at nextviewventures dot com

    • all these subtle distinctions are crazy. If there’s a capital imbalance, it’ll last for at most a single fund cycle before it resolves.

      • robchogo

        Totally agree. I kind of like the distinction of essentially investing before PMF and after PMF.

    • Alex Birns

      do you see or anticipate much of a difference in terms of your or others’ willingness to invest in these rounds across other axes beyond founder experience? e.g., for social apps vs. marketplaces vs hardware vs. enterprise/SaaS (and so on), skillset of founding team, other stuff? I wonder if there any other good indicators of ability to execute, etc., that are substituted in at this stage when you can’t just look at how they’ve executed so far with a product in market

      • robchogo

        I think different investors have different preferences here. For us, we think about time to market. If it’s likely going to be 9 months or more, we don’t see it as a great fit for our model.

    • Jordan Thaeler

      By the time you’re at revenue with PMF, it’s financial engineering of a growth investment. Period.

      • robchogo

        I’d say it’s not as simple as that, in defense of VC funds that invest primarily after PMF. Often, early PMF is for a small, early-adopter segment of a market. But there are still tons of challenges in building a company and extending to broader market segments.

        • Jordan Thaeler

          Yea but, if you’re at a ARR of $1M, you can compress expenses to arrive at EBITDA. I can’t find the article now, but I distinctly remember reading Jeff Clavier at Softtech say he wouldn’t consider the deal seed unless it was doing $100K MRR.