We recently celebrated our 10yr anniversary at OATV. Over a decade ago, seed investing was such a new idea that it took nearly 2yrs of pitching potential investors to get our first fund off the ground.

We were one of the first 5 institutional seed funds (there actually wasn't a clear name for what it was we were doing, but we always stuck with and promoted "seed" as our prefered name).

Today, there are over 500 new seed funds IN MARKET raising new investment vehicles. That doesn't include the hundreds of us that are onto our second and third funds, let alone the seed funds that have gone upstream and increased fund sizes over time.

At inception, seed funding was not just a new asset class it was a new business model. We didn't raise smaller funds because we couldn't raise more capital, we raised smaller funds because it aligned with the optionality we were trying to preserve for founders and ourselves.

With small funds and small rounds, founders had options they didn't have before. They could take on a small amount of capital and run their business profitably, they could sell early and have a life changing financial event while still producing a meaningful return for a small fund, or they could raise a more traditional round of funding from VCs buying a ticket to ride on a potential rocketship.

No seed investor would kick a Unicorn™ out of bed but neither our business model, nor our return models, were dependent on backing billion dollar businesses.

10yrs in, the business of seed investing has changed as has it's business model. We're rapidly moving away from a business model of optionality to one of arbitrage. The implicit A rounds and the siren song of Unicorn culture have proven too compelling to resist.

Despite our best efforts to change the game, we've simply become another player on the field.

Fundraising has become our business model.

So, tho I am encouraged by the flood of available capital and managers from new and diverse backgrounds, I would encourage the incoming class of seed managers to think beyond the conventional wisdom and pattern recognition baked into the business of building billion dollar businesses. A business model that depends on the business model of upstream capital will significantly limit the profile of founders one can fund and the outcomes they can achieve.

With fresh sets of eyes and full bank accounts, there is more to be done than simply running a VCs playbook on a smaller scale.

Change the game, before it changes you.

source: Medium