Seed is the new Series A, but who’s supporting founders pre-launch?

Jason Calacanis just published a good post on the changing definitions of Seed, Series A, and Series B investment. I’m going to quote his definitions in full:

2004 definition
— Pre-funding: You talk about your idea & write a business plan.
— Seed Round: You build a prototype of your product.
— A Round: The funding necessary to launch your product.
— B Round: The funding necessary to get product traction.
— C Round: The funding necessary to scale your product.

2014 definition
— Pre-funding: You build a prototype of your product.
— Seed Round: The funding necessary to launch your product.
— A Round: The funding necessary to get product traction.
— B Round: The funding necessary to scale your product.

2015 definition
— Pre-funding: You talk about your idea, you build a prototype & launch an MVP.
— Seed Round: The funding necessary to get product traction.
— A Round: The funding necessary to scale your product.
— B Round: The funding necessary to get founder liquidity, build groovy headquarters, and make competitors give up (or not start in the first place).

You’ve seen the pattern here, what used to be Series C is now Series A, what used to be Series B is now seed, and what used to be Series A is now ‘Pre-funding’. All this is being driven by increased capital efficiency. In 2004 it took until Series C to scale your product because it took a lot of money. Now you can do that with Series A. (There has been some inflation in round sizes, but the main story is definitely capital efficiency).

In his post Jason goes on to give advice to founders and angel investors and talk about his incubator The Launch Incubator and the consistent theme is that there is no support for pre-launch companies anymore. Founders who can’t launch an MVP will struggle to get funded, angels shouldn’t invest in pre-prototype companies, and The Launch Incubator is looking for companies with an MVP to take into their 12 week programme.

I think this leaves a massive opportunity to support founders who are pre-launch. There are lots of great entrepreneurs with big ideas that don’t have the technical talent to build a prototype or MVP. Investing at that stage is tricky because the company needs to quickly and cheaply build product and get traction, but the key is having the people in-house who can help the founder make that happen. That’s what we do at Forward Partners.

  • http://www.mystartupgrind.com/ Karin Nielsen

    Your summary is spot on. I know first hand just how unique the Forward model is! There is a significant opportunity for other VC’s to follow your lead but I suspect that it will take time since most won’t be set up with the technical teams and domain expertise you guys can offer. Perhaps the ecosystem needs established tech companies to incubate more solo-founder ventures using their existing resources.

  • http://www.theequitykicker.com brisbourne

    Thanks Karin.

  • Don Corbett

    Hi Nic, what about companies/people that have self funded version 1 of a product through outsourcing, have some traction and a plan for version 2. Now the challenge is building a full time team particularly technical to deliver on revenue projections. Is that too late for forward partners?

  • http://www.theequitykicker.com brisbourne

    Not too late, we’re doing a deal like that now. The question is whether we can still help.

  • http://wildirishguy.com Damon Oldcorn

    Are you saying that you are looking for lone business orientated founders with a big idea that have not established the traditional 3 x founding team with complementary Tech skillsets? Could see this maybe working for Forward (tricky as you said) … but not for the majority of VCs. Interesting though the change at seed/A/B etc … might see a cull of the more conservative or not able to adapt players.

  • http://www.theequitykicker.com brisbourne

    Yes, that’s what I’m saying. I agree it’s tricky for others…

  • http://www.sunstonecommunication.com Kenny Fraser

    Great to see there is still support out there for pre launch. Jason’s post together with recent Mattermark data on the shift to later stage funding in the US has raised a few concerns for me. I think the VC and Angel investment sectors are moving away from very early stage companies as they build up large portfolios of investment that need management and follow on funding. This creates a risk that the flow of new ideas gets throttled. Does this chime with what you see in the market?