Interview, Fireside Chat
Ed Sim: Why Seed Has Never Been More Competitive & Why Pricing Has Never Been Higher | E1076
- Ed characterizes the current market's inception-stage landscape as consisting of three distinct round structures:
- Discovery Rounds (<$2M): Typically for first-time founders exploring new markets (e.g., WebAssembly), where the goal is to iterate and graduate to a larger round.
- Classic Rounds ($3M–$5M): Preferred by Ed for first- or second-time founders who need constraints to force efficiency and lean operations; this avoids the "death spiral" of hyper-growth without product-market fit.
- Jumbo/Megatron Rounds ($6M–$10M+): Reserved for seasoned founders with prior exits (e.g., Ian Swanson of AI security) or massive TAMs, often where multi-stage firms "supersize" the deal to $10M or more to secure the entire round.
- Ed argues that the traditional "Pre-Seed" label is obsolete and often counterproductive because it presupposes the necessity of a subsequent Seed round, thereby increasing founder dilution; he prefers the term "Inception Investing" for engagement starting at idea formulation or pre-incorporation.
- Market data from PitchBook cited by Ed indicates a significant shift in company maturity at fundraising:
- The median age of a company raising a Pre-Seed round is now 1.2 years (a 10-year trend).
- The median age of a company raising a Seed round is 2.7 years.
- Ed identifies a "fuck thing" market dynamic where institutional capital is chasing "too much, too early," citing:
- A drop in total VC investment from a Q4 2021 peak of ~$200 billion to ~$73 billion in the most recent quarter.
- An emergence of $20M–$100M "option checks" from multi-stage firms seeking immediate first-in, first-out positions to recoup capital, often ignoring the dilution and operational bloat caused by excess cash.
- The "Squeeze Theory" is rejected by Ed as a viable long-term strategy for most founders, noting that only exceptional allocators (e.g., Rahul Jain of Superhuman) can resist the temptation to spend excess capital; for 99.9% of companies, excess capital creates a "comfort trap" that stifles performance and delays product-market fit.
- Bold Start's fund strategy involves a size range of $150M–$250M, designed to maintain a highly concentrated portfolio (~25 companies) with significant ownership positions (targeting ~15% entry) to allow for follow-on participation through Series B without relying on external multi-stage firms.
- Bold Start employs an "Opportunity Fund" strategy, roughly equal in size to their core fund, specifically to maintain ownership and board seats for top performers as they scale through Series B, contrasting with traditional funds that must sell down positions in later rounds.
- Ed advocates for a "fair price over highest price" mentality, noting that founders obsessed with maximum valuation sets unrealistic performance bars and limits exit flexibility in a lower-multiple environment.
- Regarding AI, Ed differentiates between "AI-native" companies and AI-enhanced enterprise software, predicting that while 85% of deal flow is AI-related, most value will be captured by incumbents or private companies (like Snyk) solving specific, deep technical problems (e.g., AI security, hallucination mitigation) rather than generic "LLM wrappers."
- Ed predicts the end of the "preemptive round" cycle, urging investors to wait for data-driven de-risking between rounds rather than funding companies every 6 months with insufficient traction signals.
- Market exit multiples are expected to normalize between 10x and 14x forward revenue, a significant compression from the 35x–40x peaks seen during low-interest-rate environments, making ownership concentration and capital efficiency critical for returns.
- Bold Start plans to remain in the inception stage, explicitly avoiding leading A-rounds to prevent the need for "bad decisions" forced by asset management scale, while expanding its team with operating partners (e.g., product experts from Snyk) to accelerate founder success.
- Ed cites "Customer.io" (inception) and "Snyk" as major wins, noting that winning in enterprise often requires building a "depth of table stakes" (4+ functional features) to compete with incumbents like Zendesk, a process that inherently slows time to revenue but creates durable moats.
- The primary lesson from recent cycles is "lean out strategically," advising against blind capital deployment in "preemptive" rounds where the third or fourth consecutive investment often carries disproportionate risk without corresponding de-risking.
- Ed asserts that M&A for sub-billion dollar companies will likely diminish due to corporate development inefficiencies, suggesting that the most viable exit path for growth investors will be "1X exits" (taking initial capital off the table) to reinvest, which can still be a massive win for founders if executed well (citing Loom).
- In a "quick fire" round, Ed states that 99% of money chasing generic "AI startups" (defined broadly as companies adding AI features) will go to zero, as AI will become an embedded utility in enterprise software rather than a standalone business model.