Not only do the top GPRank™ seed managers collectively over-produce unicorns compared to their peers. They invest earlier and so enjoy much higher multiples of invested capital (MOIC).
This is the bedrock on which growth investors sit. Like a relay race, the seed managers had over the baton to the next stage investors for the next part of the journey. Without the seed managers, the growth opportunities would be significantly different.
And just like the best artists or musicians or teachers are simply good at what they do, so too are the best seed managers unusually good at filtering through large numbers of companies and finding their way to an outsized group of winners.
But seed managers are often under-appreciated. Institutional allocators often cannot allocate to seed due to the fact that the fund sizes are too small for the institutions.
Later stage investors are prone to resist the participation of seed managers in later rounds or seek to lower their right to maintain their investments in a company. This sets up a win-lose dynamic between two stages of the venture ecosystem. It leads to bad sentiment and poorer outcomes for the seed managers.
This bad sentiment is a mistake.
Seed managers need growth investors to help maintain the momentum of their fastest-growing companies and clearly should welcome these investors into their portfolio companies. The asset value embedded in the cap tables of the companies Coatue and others invest in is a big part of the seed managers’ upside. And institutions should be able to allocate to seed as an asset class.
So how can seed managers and later-stage investors work together better? And how can institutions place capital into the fastest-growing seed-funded companies? More in this week’s video.
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