The Twenty Minute VCEd Sim: Why Seed Has Never Been More Competitive & Why Pricing Has Never Been Higher | E1076
CHAPTERS
- 0:35 – 2:52
Boldstart’s “inception investing” and why stage labels got messy
Ed Sim explains Boldstart’s approach to partnering with founders before incorporation, helping iterate on the idea and early team, and then leading the first institutional round at formation. He argues the proliferation of pre-seed/seed labels has distorted expectations, timing, and dilution outcomes for founders—especially repeat founders.
- •Boldstart positions itself as an “inception investor,” engaging pre-incorporation
- •Inception support: idea iteration, “battle testing,” pre-selling early hires
- •Round sizes can range widely (from a few hundred K to $10M)
- •Pre-seed/seed labeling now implies extra rounds and extra dilution
- •Founders increasingly want to skip “pre-seed” framing and go straight to a meaningful seed
- 2:52 – 4:25
Why huge early rounds are happening: multi-stage funds, dried-up growth, and cap-table priority
Harry asks why ex-Stripe/OpenAI founders can raise massive seed rounds, and Ed ties it to a harder venture environment and capital overhang from mega-funds. With growth investing slowed, multi-stage firms push earlier to secure first position on the cap table, believing early entry offers asymmetric upside even if they’re wrong.
- •Overfunding in prior years + growth pullback changed incentives
- •Investment levels fell sharply from 2021 peaks, shifting behavior downstage
- •IPO outcomes (e.g., Instacart) reinforced that early investors win most
- •Mega-funds deploy large “option-like” checks to be first on the cap table
- •Competitive pressure pushes prices and round sizes up at inception
- 4:25 – 8:25
Too much capital early can harm companies: incentives, hiring, and comfort as a trap
Both argue that excessive capital early is net-negative for most startups, except rare elite allocators. Ed explains how high valuations reduce employee upside, create hiring friction, and encourage undisciplined expansion—while “runway comfort” often leads to waste rather than resilience.
- •Most founders are not exceptional capital allocators; big checks magnify mistakes
- •High early valuation hurts recruiting and employee expected outcomes
- •Founders tend to spend available cash; runway is rarely “left untouched”
- •Ed tests founders for willingness to operate under constraints
- •Pressure and constraints often improve execution; comfort can slow urgency
- 8:25 – 14:00
The three inception-round types: Discovery, Classic, and Jumbo (“Megatron”)
Ed lays out a clear taxonomy for inception rounds, spanning from sub-$2M experimentation to $10M jumbo rounds for repeat founders. He explains what each round is for, who it fits, and how multi-stage firms try to supersize the best opportunities.
- •Discovery round: < $2M for first-time founders exploring early markets
- •Classic round: $3–5M (Ed’s preferred) to build lean with constraints
- •Jumbo round: > $5M, often $6–10M for seasoned founders with prior exits
- •Inception = pre-incorporation engagement; not the same as incubating/accelerators
- •Multi-stage firms often push founders to raise $10M instead of $4–5M
- 14:00 – 18:57
Fund size realities: why seed funds must compete across the stack
The discussion shifts to fund construction and why traditional seed-fund sizes no longer match today’s check sizes and follow-on needs. Ed argues a winning seed/inception firm must be able to write meaningful checks from $1M up to $10M and support companies through bridges and multiple early rounds.
- •To win, funds must compete with angels, pre-seed, seed, and mega-funds
- •“Ball control” requires writing meaningful, decisive checks (not small options)
- •Follow-on checks can exceed the first check if the company is executing
- •Enterprise startups often need more time; bridges may be necessary
- •Ed argues $150–250M is a workable concentrated, ownership-driven fund size
- 18:57 – 20:48
Is enterprise SaaS still investable? The upside case for disciplined entry and ownership
Harry raises skepticism (via Jason Lemkin) that enterprise SaaS returns may be structurally lower due to higher entry prices and public-market multiple compression. Ed counters that enterprise IT spend is reaccelerating, cloud migration still has runway, and cybersecurity demand remains durable—making discipline on price and ownership the key lever.
- •Return concerns: inflated entry prices + lower exit multiples
- •Ed: enterprise IT spend reaccelerating; cloud migration still early (~25%)
- •Cybersecurity is evergreen due to new attack vectors and massive buyer budgets
- •Winning requires ownership targets (e.g., ~15%) and disciplined pricing
- •Ed welcomes “overcrowded” narratives as opportunity for disciplined investors
- 20:48 – 22:06
Dilution, capital efficiency, and Boldstart’s opportunity fund strategy
They discuss how dilution erodes outcomes and why capital efficiency matters more in compressed-multiple environments. Ed explains avoiding low-margin “pass-through” AI/compute economics and describes Boldstart’s use of an opportunity fund to maintain ownership through later rounds.
- •Dilution meaningfully reduces exit ownership and cash-on-cash returns
- •Capital efficiency: avoid businesses where most funding flows to compute vendors
- •Low-margin models are less attractive for venture outcomes
- •Opportunity funds help maintain ownership beyond early rounds
- •Strategy: inception invest + support winners through B while keeping board/ownership
- 22:06 – 24:53
Boards at pre-seed: cadence, governance, and founder-first communication norms
Harry challenges the idea of board seats at very early stages; Ed agrees small rounds don’t need boards but defends governance for larger “classic” rounds. He outlines a lightweight approach: founder-preferred communication, minimal materials, and quarterly cadence designed to prepare founders for future governance needs.
- •Very small rounds often don’t warrant formal boards
- •For classic rounds, equity rounds (not stacked SAFEs) clarify ownership
- •Quarterly, text-only board updates as a pragmatic governance baseline
- •No one-size cadence; adapt to founder experience and company stage
- •Trust-based, on-demand support beats overly rigid meeting frameworks
- 24:53 – 26:27
Macro, AI hype, and what actually makes money in AI
Harry asks whether macro will hit seed; Ed argues discipline is the constant, then pivots to AI. Ed believes AI is transformative but warns it’s hard to make money without moats; he criticizes “.ai domain” chasing and overpaying at 100+ post-money valuations.
- •Seed isn’t immune—discipline matters regardless of macro conditions
- •AI is transformative, but monetization and defensibility are difficult
- •Data moats matter; API wrappers are easy to replicate
- •Market behavior resembles prior bubbles (.com analogy)
- •Avoid funding “AI” at extreme prices without clear differentiation
- 26:27 – 29:17
AI everywhere vs “AI startups”: portfolio reality and incumbents with moats
Ed and Harry refine what “AI-first” means by distinguishing features added to products from companies whose entire identity is “AI-powered X.” They argue winners often have proprietary distribution and data (e.g., Canva-like, late-stage private leaders) and cite Snyk’s positioning as “AI protecting AI.”
- •Many companies will add AI features; that doesn’t make them “AI companies”
- •A large share of portfolios will incorporate AI within 12 months
- •Winners likely have data, distribution, and flexibility (esp. pre-IPO privates)
- •Snyk example: data moat + independent security layer for AI-generated code
- •Strategic M&A done before hype cycles can create durable advantage
- 29:17 – 31:54
M&A and liquidity: disagreements on deal viability and the rise of pragmatic outcomes
Harry argues M&A is broken (too small is immaterial; too large faces regulation). Ed expects increased M&A driven by overvalued unicorns, investor desire for liquidity, and situations where deals clear preference stacks and still reward founders—citing Loom as an example of a strong founder outcome.
- •Many unicorns won’t IPO; some will seek alternative exits
- •Growth investors may accept 1x outcomes to recycle capital
- •Founder outcomes can remain excellent if pref stacks are cleared
- •Ed predicts more M&A as market reprices and liquidity needs rise
- •Debate: corporate appetite vs regulatory constraints at large deal sizes
- 31:54 – 37:20
Compressed growth valuations: how to advise founders on price, partners, and capital taken
They discuss the downturn in growth valuations and how founders should navigate. Ed emphasizes partner quality and fair pricing over maximizing valuation, warning that too much capital and too high a bar restrict later fundraising and exit options; he notes exceptions for compute-heavy AI businesses.
- •Growth valuations are down materially; some pockets still fund strong performers
- •Boldstart pushed to fund many companies earlier; now focus is efficiency
- •Advice: optimize for the best long-term partner at a fair price
- •Avoid taking too much capital and setting unsustainable valuation hurdles
- •Compute-heavy AI may require different financing realities (Ed avoids this area)
- 37:20 – 50:31
Lessons, wins/losses, and quick-fire: preemptive rounds, signals, IPO reopening, and Boldstart’s future
Ed shares key lessons from the cycle: too much cash can kill startups, and investors should be cautious leaning into rapid preemptive rounds without true de-risking. He recounts major wins (Kustomer, Snyk), explains why incumbent-chasing requires broader product depth, then closes with quick-fire views on AI definitions, IPO windows tied to rates, and Boldstart staying focused on inception investing with more operating partners.
- •Cycle lesson: avoid comfort capital; it can trigger growth/death spirals
- •Investor lesson: don’t over-allocate into repeated preemptive rounds without new signals
- •Win stories: Kustomer (incumbent replacement requires table-stakes depth), Snyk (category creation takes time)
- •IPO window likely reopens when rates stabilize and decline; multiples won’t return to 2021 peaks
- •Boldstart’s 10-year plan: stay inception-focused, add operating partners, avoid becoming an asset manager
