In a recent blog post, Paul Kedrosky wrote:
[T]he super-seed crash is coming. We have silly numbers of companies being seeded — I had someone at a well-known, larger venture fund tell me yesterday in San Francisco that they were seeing dozens of Series A-seeking newly angel-funded companies a week. Valuations are escalating as super-seeding angels compete against one another, while fourth-quartile incumbent VCs jack prices to buy deals through dint of having more money to put to work.
I think he’s spot on.
Between angel friends, friend starting seed funds, VC friends doing seed investments, and VC friends starting seed funds out of their venture funds, it’s getting a little absurd. This hasn’t felt right for a while, and I think Paul nailed it.
Some argue this supply of capital is nothing but good for entrepreneurs. I disagree, and Paul touches on this as well:
[M]ore companies seeded means more full-cycle money required to break through the noise and competition, which while drive dilution of seed investors who can’t follow-on in subsequent larger rounds
Easy and excess capital creates a “weedy ecosystem”, which makes it harder for everyone. Even if you’re the best idea in that ecosystem, the bar is raised by those around you.