As the late stage investing landscape becomes more and more chaotic, the battleground for VCs has largely shifted to early stage. Today, there’s more institutional capital than ever chasing Series A’s from firms like Tiger Global and Insight Partners in addition to traditional Silicon Valley VCs.

Not only has this led to ballooning Series A round sizes, but in response it’s also led many VC firms to re-evaluate their Seed investing strategy to try and compete.

Now the Seed landscape has…

• Traditional Seed funds
• Emerging Pre-Seed funds
• Solo capitalists
• Silicon Valley stalwarts raising dedicated seed funds (Andreessen Horowitz, Sequoia, Index Ventures, Greylock, and others)
• And other traditional Series A firms dabbling with earlier stage checks given they’ve been boxed out in their usual strikezone

While more money flowing earlier is certainly a net positive for entrepreneurs, our advice is to tread carefully and make sure you know the type of VC firm you’re pitching and what “Seed” means to them.

Redefining the Lost Meaning of “Seed”

Today’s Seed rounds are their own, new beasts as round sizes fluctuate all over the place.

A startup raising a Seed round could mean a $1M round or a drastically larger $10M round. On the flip side, a VC saying they invest at the Seed stage no longer signals anything to a founder.

So what should we do now? Rename VC rounds? Eliminate VC round titles all together? While that may be the larger tectonic shift at play for the industry, in the short-term, it’s more about shifting the definition of what a Seed round is and how it functions.

Instead of thinking of a Seed round in terms of funding size, we need to shift to think about it more in terms of startup stage, traction, and milestone(s) achieved and targeted within the round.

Specifically in the enterprise startup world, there’s a spectrum of how much capital startups need in order to successfully launch and achieve product market fit. Some companies can build a SaaS application and gain momentum without any funding. Some companies can leverage an existing open-source project and community to get going. Yet others require millions in funding to build new infrastructure that may take months, if not years, to go live and start selling.

The same discrepancy exists on the VC side with firms specializing in different parts of the tech stack, looking for different product development stages, and requiring varying number and size of customers.

So How Do We Solve All This “Seed” Murkiness?

Founders need to be aware of this dynamic and be confident in explicitly asking VCs about their expertise and investing criteria. Here’s a short list of the most important criteria that explore whether a VC will be the right partner:

Product: Do you invest in pre-product, in product development (i.e. beta), or post-product (live product)?

Sector: What tech category/domain do you have expertise in? Do you have experience in our broader category? If not, why are you interested in it now?

This is important because it ensures you are aligned on the proper metrics your startup needs moving forward. For example, you don’t want a predominantly SaaS investor looking at your cloud-native database. You won’t get credit for your potentially enormous TAM because it’s outside their expertise. They may fall back on revenue metrics, which you likely won’t have at an early stage. Or, if you rely on open source, they may not have the network to assess the tech and community engagement as demonstrable progress.

Go-to-market: Do you invest pre-revenue / pre-users, with early design partners, or post-revenue?

If you require revenue, what threshold do you require, and how does that relate to the check size being raised? Do you distinguish between product-led-growth (PLG) vs. outbound prospective customers vs. enterprise customers?

Check size: What size check is your sweet spot?

VCs that just 18 months ago were co-leading $3M Seed rounds may have moved earlier and prefer to solo lead a $1M-$1.5M Pre-Seed so that they can get ownership. Some VCs are going bigger and leading $8M-$10M Seed rounds out the gate for a company that look more like small Series A’s. And some have stayed the same.

Is Seed core to your strategy?

You want to avoid investors just dabbling at the Seed stage or using it as an option call to be positioned to lead your Series A. You also want to be mindful of signaling risk if you’re getting money from a seed pocket of a much larger firm. A key element to look out for is that you want the dollars invested to be meaningful so that a partner cares about your company and supports you during any tough times ahead.

More questions to ask:

• Do you lead or follow?
• How do you price?
• Do you require a board seat?
• Do you prefer to be the first institutional money in? Or is your sweet spot after a small Pre-Seed/Seed?

At Work-Bench, We’ve Stayed True To Our Investing Strategy

In the spirit of transparency, here’s a look inside our investing strategy here at Work-Bench. Thanks to the launch of our $100M Fund III back in July, we’re doubling down on what we’ve been (and love!) doing all along, just with bigger checks:

• Product: We prefer a live product that can be put in front of customers. However, in certain categories a beta product can do the trick.
• Sector: We are all enterprise software, all the time. Our primary investment areas include AI / Machine Learning, Cloud Native Infrastructure, Cybersecurity, and Future of Work, and we go deep thematically within each of them.
• Go-to-market: We love investing pre-revenue and building your GTM machinery alongside you and your team. Then we help package you up with a nice bow (i.e. customers!) for another Series A lead.
• Check size: We lead $3M-6M rounds, target 15%-20% ownership, and take a board seat(s). Sometimes we’ll be the first check in, if the founder was bootstrapping. Other times, we’ll lead a new round after the founder raised $750K -$2.5M to build a v1 of the product.
• Seed is all we do: We take a concentrated approach to our portfolio construction and only do about 18 deals out of a fund. This translates to about 6 investments made by our team a year, and enables us to be truly hands on partners to all of our portfolio companies.

If you’re an early stage enterprise startup building out your go-to-market strategy, we’d love to hear from you!

Thanks to Kira Colburn for her help in editing this post!

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