May 10, 2024

231. Seed Crust: What to Expect from 2024

231. Seed Crust: What to Expect from 2024
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Season 4

Text your thoughts directly to Rich.

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

About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast - get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

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
WEBVTT

00:00:01.000 --> 00:00:07.820
Interest rates affect startup investing to a very high degree hell yeah, the Fed rate matters here, so much.

00:00:08.539 --> 00:00:14.480
If you plotted the interest rate line as an inverse to the bars in this chart, like, does it match exactly?

00:00:14.519 --> 00:00:15.349
Yes, pretty much.

00:00:15.380 --> 00:00:20.219
It is completely underreported or everyone in venture sort of knows it, but we should talk about it more

00:00:20.559 --> 00:00:26.489
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.

00:00:27.140 --> 00:00:42.079
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.

00:00:43.100 --> 00:00:51.570
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.

00:00:51.850 --> 00:00:56.770
Instead of having them in November, you get them in October and September and a little bit in August.

00:00:57.000 --> 00:01:00.200
I would expect September, October to be pretty hopping with IPOs.

00:01:01.140 --> 00:01:04.840
I think that this backlog that is here will clear like a traffic jam.

00:01:04.840 --> 00:01:14.885
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.

00:01:15.436 --> 00:01:19.450
This is going to take a while before it moves forward to get to the next level.

00:01:20.239 --> 00:01:25.670
I think that also that the bifurcation of this market persists, this hot or not, at least through 2024.

00:01:26.219 --> 00:01:38.519
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.

00:01:39.269 --> 00:01:42.609
The other thing that I think is coming is that the three round seed is the new normal.

00:01:42.840 --> 00:01:49.417
This is the world that we're in right now, when that seed will remain dispersed across multiple sub stages, whatever they're called.

00:01:50.340 --> 00:01:55.484
We're also seeing seed rounds at the Seed 2 stretching further into what used to be Series A.

00:01:55.825 --> 00:02:02.947
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.

00:02:03.825 --> 00:02:08.026
The other thing that I would expect to see is seed funds starting to creep into a Series A.

00:02:08.686 --> 00:02:11.866
And there's a level of step ups that happen inside of venture as well.

00:02:12.385 --> 00:02:14.116
SpringTime, our first fund was 8 million.

00:02:14.116 --> 00:02:15.686
Our second fund was 25 million.

00:02:16.096 --> 00:02:19.870
Somebody that raises a 50 million fund, then they go and raise 100 million, then they raise 150 million.

00:02:20.555 --> 00:02:25.057
Wouldn't be surprised to see those funds that started out at Seed move into Series A.

00:02:25.591 --> 00:02:26.721
The demand is there.

00:02:27.040 --> 00:02:28.811
The demand would favor new entrants.

00:02:29.151 --> 00:02:31.980
But it's not easy to just spin up a new Series A fund.

00:02:32.411 --> 00:02:33.377
Seed is very collaborative.

00:02:33.377 --> 00:02:37.078
You can have three or four or six or twelve Seed investors in one round.

00:02:37.358 --> 00:02:39.948
But Series A is sharp elbows all around.

00:02:40.098 --> 00:02:42.497
If you take my term sheet or you take somebody else's term sheet.

00:02:43.253 --> 00:02:45.204
So this is some of the things that we're expecting to see.

00:02:45.234 --> 00:02:50.433
I think that for Seed, you still have another year of circling around under the crust before you can break through.

00:02:51.433 --> 00:02:56.170
Before we wrap up, let's delve into what sets AVL Growth Partners apart.

00:02:56.670 --> 00:03:03.901
AVL starts with a comprehensive business evaluation, uncovering opportunities and mapping actions to both your short and longterm goals.

00:03:04.401 --> 00:03:10.314
Their evaluations are crafted from over a decade of experience pivoting companies from growth to scale.

00:03:10.814 --> 00:03:15.375
If you want to take your company to the next level and need the experience required to make it happen.

00:03:15.875 --> 00:03:18.664
Visit AVL growth.com right now.

00:03:19.414 --> 00:03:24.305
Time is our most precious asset, thank you for spending some of it with us this week.