Once upon a time, not so long ago, there was this idea of seed rounds, As, Bs, Cs, Ds, and IPOs. The concept worked like this: companies started without very much and raised a small amount of money to hit a proof point. They’d hit a proof point, get bigger in the process, and raise a larger amount of money. This would repeat all the way to the IPO when they’d raise a whole lot of money and/or generate liquidity for employees and investors. At each step of this process, investors would evaluate the company based on somewhat objective measurements of progress - metrics. Of course, the investors wouldn’t judge solely on metrics because they never told the whole story and, fundamentally, the thing that mattered most was the distant future. But, still, metrics were useful.
In the last couple years, metrics lost their value. Not 100% of it, but a lof it, especially as a somewhat objective standard. There are a few reasons for that change. A big one is that numbers started getting very very very ludicrously big almost unimaginably fast. First companies started going from 0-$10m in 18 months, then it was 0-100 million and then 0-$1B in revenue in under two years. When a single company grows that way, it can be explained away. When that behavior becomes the baseline we start to lose our ability to judge normal/exceptional.
Maybe worse, getting that normal/exceptional decision wrong is far more consequential because the fast movers are that much faster and get that much bigger. But worst of all, maybe, is that the mistake is OBVIOUS that much faster to everyone! No one likes being wrong in public, certainly not investors.
So metrics are out as a way to judge progress objectively.
Next on the list of no longer useful method of evaluating scaling company quality: technology. Our business is, primarily, about funding novel technology that also makes lots of money. Novel technology is hard. At least, it was. The rate at which technology is becoming easier to build combined with the number of people willing to do it and having the means to do it is still on an exponential curve. Nearly every unique piece of revolutionary software built in the last year has been copied almost immediately by competitiors with ever increasing speed. This is true of saas businesses and it is true of the most complex AI models. For all the funding they’ve raised, OpenAI and Anthropic are seemingly within months of one another in replicating advanced capabilities.
So what’s a VC to do? Can’t evaluate based on metrics. Can’t evaluate based on technology. Can’t really fund based on market or idea because those are similarly replicable.
That leaves the final leg of any evaluation: founders. Founders end up being the fixed point around which investors can build an investment thesis. That’s particularly interesting because it is stage independant and sector agnostic. You can back an exceptional founder at seed or at the D and largely base your argument around founder quaility (see Elon Musk). You can do it with any amount of money, and be logically consistent - just back the best founders.
It is true that, over time, the best founders pile on exceptional progress - they quickly hire incredible people, they find new ways to do hard things, they generally manage to stay ahead of all curves. And because that’s true, you can draw a line back from any truly exceptional outcome to the earliest stages of a company and argue that, if the founder is good enough, the stage and the money they need are divorced from another.
So that’s the theory - fund the founder. That was always the primary driver of a seed round. Now its the primary driver of every round. Now every round is basically just seed
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