Friday Letter: ‘It’s the most exciting time ever to be a seed investor’

The Build Back Better plan, if it passes the Senate, could provide billions of dollars for climate tech start-ups. Brad Harrison of Scout Ventures in Austin is thus bullish on seed investing.

It’s easy to forget about seed-stage investing. With one mega-fund after another knocking out new multibillion-dollar vehicles in succession, seed investing can feel a little lost in comparison.

And even with the dedicated seed funds we’ve seen launched in the last year-plus from Andreessen Horowitz, Greylock, Index Ventures and Sequoia Capital, new seed transactions are often overshadowed by the numerous mega-deals and the unicorn valuations they often bring.

But if I were to make a prediction for 2022, I’d say that seed investing is about to get hotter, especially when it comes to climate tech start-ups.

Part of my thinking here is based on President Biden’s social spending and climate bill, known as Build Back Better, which is likely to come to the Senate floor as soon as the week beginning December 13. The bill still needs to go through budget reconciliation, but it includes $111 billion for modernizing drinking water, wastewater and storm water systems.

One investor who knows a thing or two about working with the government is Brad Harrison, who founded Scout Ventures in Austin nearly a decade ago. In September, the firm announced it had raised $55 million for its third fund. Harrison is a West Point grad and served as an Airborne Ranger in the US Army. Scout backs veterans in such sectors as frontier tech, which includes machine learning, robotics, drones, physical security, quantum computing and space, all of which Harrison says are related to the Build Back Better bill. Scout also works with the government to secure grants for its entrepreneurs, providing additional non-dilutive capital.

I spoke with him recently and he was bullish on seed investing, particularly when it comes to government-supported innovation.

I asked him about the state of seed, given how there’s so much available capital at that stage – from multi-stage investors to an array of seed investors like himself.

“I think it’s the most exciting time ever to be a seed investor, I really do,” Harrison said. “You’ve got a lot of variables that support the seed level, but now you’ve got all these different mechanisms for liquidity on the other side. Traditional IPOs SPACs, growth private equity. There’s more money at the liquidity stage than there’s ever been.

“If there was no liquidity at the tail end, nobody would want to put money to work on the front end. But we’re seeing the greatest liquidity ever. So, I foresee for seed investors, this is going to be the greatest decade of innovation that we’ve ever seen.”

Let me know what you think. You can ping me up at agoldfisher@buyoutsinsider.com to have an email convo or a virtual chat.