Trends Watch: Seed-Stage Venture Capital Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Kevin Moore, Founder & Managing Partner, Serac Ventures.

What is your outlook for seed-stage VC investing?

In the past ten years it’s become easier to start and scale a technology company. It’s now less expensive to store and transmit data, work virtually with people anywhere, and build sophisticated tools and services with little to no coding experience. The lower barrier to entry to starting a technology company has led to an exponential growth in the number of founders. This increase is especially prevalent among those located in geographies and in certain demographic groups who have historically had lower participation in the venture capital ecosystem.

In the United States, new business formation increased 54.3% from 3.5 million to 5.4 million between 2019 and 2021.^[1] This surfeit of founders has created a surge in the number of accelerators and incubators. Researchers estimate there were just over 2,300 accelerators and incubators in the United States as of December 2022.^[2] This in turn has had a positive impact on the resources and networks available to seed-stage companies as they develop.

In today’s VC ecosystem, most seed-stage companies have an established team, a finished product and paying customers. A seed-stage company today looks very much like a Series A company did ten years ago. According to Wing Ventures’ latest V21 Report,^[3] the median 2022 seed financing is 28% higher than the median 2010 Series A financing.

Across all stages of venture investing, there are varying degrees of risk. That being said, what I believe the data above implies is that seed-stage companies today are far less risky than they were 10-15 years ago, which bodes well for seed-stage investors in this market.

Where do you see the greatest opportunities and why?

There’s been an enormous shift in the way society thinks about work and finance and how we interact with media and brands. For example, the popularity and widespread use of social media has given rise to a new group of workers called creators who create original content to educate, train, inform, and provide entertainment to the masses. Brands also work with creators to market their products or services and reach new customers. Goldman Sachs estimates the overall creator economy market size is valued at over $250 billion and projected to grow to over $480 billion by 2027.^[4] Future of work and financial services technologies are equally as interesting especially as generative artificial intelligence (AI) tools are being woven into the fabric of operating systems and gain wider acceptance in mainstream society.

What are the greatest challenges you face and why?

One of the greatest challenges facing the VC industry right now is the dearth of exit activity. So far in 2023 there have been 82 IPOs, which is the third lowest number of IPOs since 2016. For comparison, there were 397 IPOs in 2021 generating proceeds of $142.4 billion back to investors. In the first nine months of 2023, IPOs proceeds were a meager $16.7 billion^.[5] Institutional investors rely on distributions for a variety of purposes and when distribution activity is low, that in turn makes it harder for founders and venture capital firms to raise capital. Despite the challenging fundraising environment, I think it’s been healthy for the venture capital industry to experience a reset back to fundamentals. The growth-at-all-costs mindset has waned, and founders are once again focused on business fundamentals and achieving profitability.

What keeps you up at night?

To continue my thought above, while I think a market reset for the VC industry is healthy, I worry about how long it might take. There are very small, but important, lagging indicators that suggest the VC industry and the broader economy are improving. Early and late-stage valuations have fallen below their 2021 figures,^[6] which creates a favorable outlook for investors from a pricing perspective. The Fed funds rate remained unchanged at the last Federal Open Market Committee (FOMC) meeting in September 2023, which suggests efforts to curb inflation are working. IPO volume, albeit relatively low in comparison to 2021, increased year over year from 71 IPOs in 2022 to 82 IPOs in the first nine months of 2023. And finally, the national unemployment rate remains low at 3.8%, relatively unchanged from this time last year. As the macroeconomic environment continues to improve, that bodes well for the venture capital industry as a whole.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.

[1] Alliance for Entrepreneurial Equity, “Who is Behind America’s Startup Surge?” August 1, 2022.

[2] Tracxn, “Accelerators and Incubators in the United States.” December 2022.

[3] https://www.linkedin.com/pulse/seed-new-b-2019-v21-analysis-peter-wagner/

[4] Goldman Sachs, The creator economy could approach half-a-trillion dollars by 2027

[5] Renaissance Capital as of 10/1/2023

[6] Pitchbook NVCA Venture Monitor, Q2 2023