231. Seed Crust: What to Expect from 2024

After digging through the data, I lay out my expectations for the rest of the year.

Seed Crust: State of the Seed Market 1H 2024
Most startups at Seed are circling around, unable to break through to Series A. We're calling this the Seed Crust. I recently released a market report covering: 

• The market forces behind this
• What it will take for this to change
• The paths forward for founders stuck

Download the report: here: https://vcminute.substack.com/p/seed-crust

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About SpringTime Ventures
SpringTime Ventures seeds high-growth startups in healthcare, fintech & insurtech, and logistics & supply chain. We look for founders with domain expertise, forging a path with a truly transformative technology. We only invest in software-based businesses in the USA. We bring a people-focused approach, work quickly, and reach conviction independently. Our initial check size is $600k. You can learn more about us and our approach.     

Transcript

Peter Walker: 0:01

Interest rates affect startup investing to a very high degree hell yeah, the Fed rate matters here, so much. If you plotted the interest rate line as an inverse to the bars in this chart, like, does it match exactly? Yes, pretty much. It is completely underreported or everyone in venture sort of knows it, but we should talk about it more

Rich: 0:20

I'm going to actually talk a little bit about that right now as we dive into SpringTime's analysis on what we see coming. I would expect that we are settling into this interest rate environment with the acknowledgement that we've had so many expectations of rate cuts only to have inflation jump or something else happen and the Feds say, ah, we're not going to cut interest rates. We're also in an election year and what happens in election years historically is that you still have the same number of IPOs, they just pull those IPOs forward. Instead of having them in November, you get them in October and September and a little bit in August. I would expect September, October to be pretty hopping with IPOs. I think that this backlog that is here will clear like a traffic jam. If you've ever been stuck in a traffic jam, which I'm sure we all have you know that the accident could have been cleared 20 minutes ago, and it will take 40 minutes for it to get back to you to where you are. This is going to take a while before it moves forward to get to the next level. I think that also that the bifurcation of this market persists, this hot or not, at least through 2024. And definitely until startups start to break through this period, it's going to be, here's this company that's flying and they've got 100 percent year over year revenue growth, and everybody wants to try to cram into that, and we'll keep driving those prices up. The other thing that I think is coming is that the three round seed is the new normal. This is the world that we're in right now, when that seed will remain dispersed across multiple sub stages, whatever they're called. We're also seeing seed rounds at the Seed 2 stretching further into what used to be Series A. It used to be crazy to think that a company raising a seed round would be over 20 million on a post money basis, but we're seeing that more and more. The other thing that I would expect to see is seed funds starting to creep into a Series A. And there's a level of step ups that happen inside of venture as well. SpringTime, our first fund was 8 million. Our second fund was 25 million. Somebody that raises a 50 million fund, then they go and raise 100 million, then they raise 150 million. Wouldn't be surprised to see those funds that started out at Seed move into Series A. The demand is there. The demand would favor new entrants. But it's not easy to just spin up a new Series A fund. Seed is very collaborative. You can have three or four or six or twelve Seed investors in one round. But Series A is sharp elbows all around. If you take my term sheet or you take somebody else's term sheet. So this is some of the things that we're expecting to see. I think that for Seed, you still have another year of circling around under the crust before you can break through. Before we wrap up, let's delve into what sets AVL Growth Partners apart. AVL starts with a comprehensive business evaluation, uncovering opportunities and mapping actions to both your short and longterm goals. Their evaluations are crafted from over a decade of experience pivoting companies from growth to scale. If you want to take your company to the next level and need the experience required to make it happen. Visit AVL growth.com right now. Time is our most precious asset, thank you for spending some of it with us this week.