How to be a successful seed investor

Rob Go partner at Boston early stage VC NextView Ventures wrote earlier this week about seed investing in the US:

The challenge for those in the market of seed investing is that the barriers to entry in seed are relatively low. The main reason is that it just doesn’t take that much capital to get started. A lot of folks can pull together a few million bucks from high net worth individuals and start operating as a “seed fund”. One could go about writing dozens and dozens of $20K checks, catch a winner, and then build on that to gradually raise more money.  Accelerators and crowd-funding are encroaching on this territory as well.  On top of that, you are also seeing funds that used to be classic series A and B funds struggle to raise capital, and so go down-market to write more seed checks.

Ouch!

As Rob goes on to say, success in markets with low barriers to entry and lots of competition comes to those who differentiate themselves effectively. He offers three strategies for differentiation:

  • Be prepared to lead investments
  • Have the courage to invest early
  • Work with your portfolio to improve outcomes

EIS and SEIS have encouraged angels to make many more investments in the UK than they have in recent years, but despite that the market is still less competitive than the US, making differentiation amongst investors less important. We think that will change though, and our bet is that the axes of differentiation that Rob lists will become important, particularly the the third one. Our belief is that capital is getting commoditised and entrepreneurs increasingly choose investors based on how helpful they will be. If that’s the case then investors who are effective at putting significant resources into helping their portfolio should be in a good position.