It’s been about a little over a month since I joined Version One and returned to early-stage venture after spending the past five years as a founder in the addiction treatment space. While a month is a short amount of time, it’s been fascinating to see how certain things have changed during my time away.

Before I stepped away in late 2019, I’d spent nearly eight years in venture at Compound before leaving to build something deeply personal to me. Returning now has been simultaneously both very familiar and quite surprising. In some ways, it feels like I never left. At the end of the day, it’s still a business that’s fundamentally about the people and the privilege of learning every day from brilliant, ambitious and sometimes crazy (in a good way!) founders. At the same time, the ecosystem has evolved dramatically in all of the ways you’d expect – pace, scale, structure and the sheer number of talented early-stage investors.

The Growth of the Seed Ecosystem

When I first entered venture capital over a decade ago, it was a relatively small ecosystem. I could easily rattle off the names of the vast majority of active firms. In New York in particular, it didn’t take long for me to reach a place where I would go to events and recognize at least half of the people there, which is certainly not the case today!  

Today, there are more funds, more founders, and more capital flowing into early-stage companies than anyone could have predicted ten years ago. Deals can close within days, and investors have adapted by making faster and faster decisions. While the increase in options is overall a net positive for founders, the explosion of smaller funds means that companies who have multiple options are often picking between firms that can seem indistinguishable from one another. In other words, it’s never been harder to stand out as a VC firm. 

For those football fans, it’s often said that the NFL is a “copycat” league, meaning if a team like the Eagles has success with the “tush push” then other teams will attempt to do the same. The same goes for venture capital. For example, there was a time when the prevailing notion was that every firm needed to offer some services and/or a platform team due to the success of the model with firms like a16z and First Round Capital. In actuality, it turned out that most of this was marketing/lip-service and amongst even those whose efforts were earnest, most couldn’t replicate the same success. 

So how do firms attempt to stand out? Positioning often is typically centered around a vertical-specific focus or “value-add” around a firm’s network i.e., help with sales/BD, hiring, etc. 

During my time at Compound, we stood out through rigorous research, continuous learning, and thoughtful thesis formation as the team there continues to do an incredible job of today. This enabled us to build very strong networks in emerging areas (in some cases areas that weren’t categories yet) and meet people building at the edges at the earliest stages, sometimes before a decision had even been made to start a company. I was drawn to Version One because Boris and Angela view the world in the same way, spending the time to really go deep into areas of interest and persistently seeking out new areas before they become categories. This intellectual rigor, debate, and learning from people far smarter than I am is part of what I love most about the job.

Many successful seed funds have also grown significantly in fund size. As a result, they need to write larger checks in order to make the fund math work. During my previous tenure, it wasn’t uncommon to have multiple seed funds meaningfully involved in a single round. Now, one fund can take most or all of the seed round. While partnering with a single firm can simplify things for founders, it can also mean fewer diverse perspectives, smaller networks, and potentially less collective support—unless you’re working with an exceptional firm (and there are certainly several out there!). 

At Version One, we’re very intentional about fund size. The model is designed for us to lead or co-lead seed and pre-seed rounds with check sizes typically ranging from $1-2M in order to have strong co-investors around the table, whether we’re helping the founders build out that syndicate or not. We’re staunch believers in collaborating with other funds in ways that benefit founders and helping them to avoid the median VC trap mentioned above. 

Shifting Narrative Around Reserves

The conventional early-stage fund deployment model has historically been 50% for new investments and 50% reserved for follow-ons. Increasingly, I’ve noticed funds choosing to allocate less than 50% for follow-on investments and in some cases as little as 0%. While the reasons vary, this shift generally seems like a response to an ecosystem flush with capital.

New Liquidity Opportunities

Another big change is the increasing number of options for fund liquidity. Previously, seed-stage liquidity primarily came from exits or IPOs, and secondaries were relatively rare. Today, later-stage investors are frequently looking to buy out early investors in Series B, C, or beyond. There’s also a growing secondary market aimed specifically at providing liquidity to early-stage funds, sometimes even before the major growth rounds.

This creates a more dynamic environment where high-performing funds don’t necessarily have to wait 8-10 years to realize returns. It also allows them to recycle capital earlier, investing in additional early-stage opportunities.

Of course to some extent, this is the result of weak m&a and IPO markets. Until that changes  there won’t be an explosion of liquidity, just a realization of liquidity earlier in a fund’s lifecycle.

Some Things Never Change

While the AI explosion has quelled some of it, there’s still plenty of talk out there about the market being due for a correction due to rapidly increasing valuations and VC funds. Of course, since I first started in venture seemingly every year or two there’s talk about a reckoning coming (obligatory RIP Good Times mention) and yet, the number of funds, capital available, and valuations at the early stages continues to grow. There has to be a limit somewhere but what that limit is and if we’ll ever reach it is anyone’s guess. 

Another constant is the funnel of financing rounds. While the number of seed funds has exploded, the number of funds that lead Series A’s, B’s, C’s, etc. hasn’t grown at the same trajectory. Capital might be abundant at the early stages, but there’s still a finite universe of larger funds that lead later stage rounds which can result in a “crunch”. I’ve noticed more founders openly prioritizing profitability earlier in an effort to control their destiny so that they’re not beholden to downstream funding.

Over the coming months, I plan to write more about what I’m learning, investment theses and ideas and other areas of interest.

If you’re building something new, exploring ideas, or trying to navigate the early-stage landscape, I’d love to hear from you. And if you’ve transitioned from founder to investor (or vice versa like me ?), I’m definitely interested in hearing about your journey.