Friday Letter: The seed explosion creates frenemies

Greylock's largest pool of capital for seed deals comes as more mega-funds are pouring into the seed-stage. The question is: how will this impact the pure seed-stage investor?

Everyone is a seed investor these days, it seems. Late-stage mega-deals with the unicorns capture a lot of the attention of the investment community and the media, of course, but seed activity is busting, and there’s no slowdown in sight.

Over the the past decade or two, the cost of launching new companies has dropped dramatically, making it easier to invest in seed or pre-seed start-ups. Couple that with the growth of emerging managers, which tend to invest at the earliest stages, and the conditions seem ripe for a seed explosion.

This week, Greylock Partners, which raised $1.1 billion for its 16th flagship fund last year, announced it has raised $500 million for a pool to make seed investments.

In announcing the fund, the firm noted that over the past several years, it has made more seed investments than ever before. Greylock said that 70 percent of its new investments to date in 2021 have been at the seed stage. And it’s invested in more seed investments to date this year than all of last year.

Greylock is not the only large multi-stage investor to focus on seed. This year, Sequoia Capital launched a seed fund focused on US and Europe, as a follow up to its scout seed activity. Andreessen Horowitz launched a $400 million seed. Index Ventures created a $200 million dedicated seed fund and the firm has launched OptionPlan Seed, an app that helps its early-stage founders design a stock option plan and calculate ownership and salaries.

So there’s lots of attention focused on the seed.

I spoke with a purely seed-stage investor this month who just closed a seed fund of more than $100 million.

The seed VC called the above-mentioned firms frenemies. “We’re partnering or co-leading on deals with them, but we’re also competing head-to-head on deals,” the seed investor said.

There might be too much capital in the market right now, and these frenemies may become more enemy than friend if the large multi-stage firms continue to pour bucket loads of cash into seed deals and with dedicated seed funds.

Let me know what you think. You can hit me up at agoldfisher@buyoutsinsider.com.