It’s not the seed investors who are smarter – it’s the entrepreneurs
He makes a fine argument about how entrepreneurs today are more informed, with new seed funding options available. And he cites a key seed fund advantage: they’re in early, at lower valuations, before the VCs.
However, my issue is not about entrepreneurs (or investors!) being “smarter”, it’s about the overall ecosystem. From a macro viewpoint, I’m feeling a replay of Bubble 1.0:
- Many new investment entities and professionals (e.g. new angel investors, new seed funds, existing VCs that want to do seed investing, etc.)
- Excess of capital (most investors will tell you there are too few projects, and the ones that are investable, are too competitive)
- Follow-on financing rounds driven by bid-ups, not by business fundamentals
Capital efficiency amplifies these issues, because small amounts of capital quickly make things very crowded. I’ve written before about the “weedy ecosystem”. Being just smart is not sufficient, because entrepreneurship is ultimately zero-sum: a dumb, poorly funded set of competitors will still steal mind-share, confuse customers, confuse investors, dilute your brand, and make it harder to build your business. I see evidence of this every day: ever narrower ideas, because it’s just so insanely crowded.
In the limit, the ecosystem becomes a lottery. We’ll see a few nice exits, I’m sure, but it will be (mostly) because of luck, not skill. For an entrepreneur, that’s a very tough game to play, I prefer the Slotzo games.
(Note: these comments apply to the most crowded, most capital-efficient technology projects: such as software pure-plays, consumer Internet, “new” mobile, etc. For ideas that have real technology, real IP, or some other non-replicable component, things get a lot more interesting, for both entrepreneurs and investors).