"EDITION 207"

Published: 12/2/2020

Good morning and welcome to the weekly column talking mostly about the Sequoia Surge effect, along with more observations at the seed/pre-seed landscape building on my and other folks' work. Also I can't believe it's already December- this year has been interesting to say the least but I'm kinda glad the year is coming to an end.

https://bit.ly/3qj6GKR: Surge announces its fourth batch + more thoughts on seed

➡️ Late last week, Sequoia's seed scale-up program announced it's latest batch of companies. Interestingly more than half of the companies are building for global or regional markets (that they are presumably not based in) and are HQd all over Asia & even in the US and Australia.

➡️ Now coming to the part that shocked me a little- "Surge 04 startups collectively raised $45.35 million in their Surge round from both Surge and co-investors." The average Surge company in the current batch raised a >$2.5M seed round with Pagarbook probably raising the largest round, followed by Plum and the rest (not all the rounds are public yet).

➡️ With the four batches, Sequoia has backed just under 70 companies and since they invest $1-2M (at the minimum, I assume they might do more in some others) in each company, they have now invested over $100M through the program. I had previously talked about the explosion of seed rounds in a substack piece a couple months ago but maybe I had downplayed the influence of Sequoia.

➡️ The explosion of seed seems to correlate to both Sequoia launching Surge as well as YC expanding their batches sizes for Indian companies. And this year, amidst a global pandemic the early stage market can only be described as insanely competitive. And while there are more and more investors entering the market each year, it seems like the number of founders is shrinking.

➡️ With platforms like AngelList + LetsVenture, almost anyone can run a syndicate and invest in companies, and with the massive Jio fundraises more firms in the US are also actively looking towards India- but where are the founders?

➡️ To this I can only speak anecdotally but after talking to friends who've been working in the industry for a bit, the one major takeaway I have about Indian startups is that being a founder is really fucking hard, and being one in India is even harder. The operational headaches of running a company along with the hyper-competitive environment can really take it toll on folks- and on top of all of that it really seems like its culturally ingrained in us to try to tear down founders and companies who are doing well.

➡️ Thus while we have all these investors with huge new funds, there is still a very real lack of founders starting companies, resulting in the second-time and third-time founders raising huge seed rounds- and at times double digit figures diluting over 30%+ of their companies at the earliest stage.

➡️ The other result of this hyper-competitive environment has resulted in firms doing things they might not have a couple years ago. Rahul Mathur (founder @ BimePe) wrote about his own observations raising his pre-seed round where a lot of the top tier venture firms (which traditionally) invest in Seed/Series A companies are now writing ~$150k pre-seed checks.

➡️ It seems interesting and a little weird that $100M - $300M esque funds are writing option checks as tiny as $150k, but that probably just shows what kind of hyper competitive environment the seed landscape looks like currently.

➡️ The reason why I say "interesting" is that the same firms putting a couple hundred thousands in a pre-seed or seed round for low single digit percentage ownership are also investing several million dollars in other seed rounds and owning a significant part of the companies- in the mad dash to get into competitive rounds, some firms are potentially not as concerned about ownership targets.

➡️ I'm a huge fan of Sequoia's surge program because the best founders of the country can now partner with Sequoia from the very earliest stages and continue to work with them through their venture and growth rounds, but I do hope there are other larger scale programs that actually drive the exponential growth of new founders in the country.

➡️ Until then seed & pre-seed will continue being frothy and while some firms (under pressure to deploy) will buy into the hype, some will play the patient game and stick to their check sizes and expectations of ownership.