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Report: How Are Pre-Seed and Seed VC Firms Investing in 2024?

July 11, 2024

The venture market bottomed out from historic highs last year. Total deal volume slumped roughly 50% from 2021’s peak, exit activity hit a ten-year low, and venture fund performance dropped across the industry. These rapid changes have created a new landscape for venture capital, and it’s affected how VCs are investing.

Right Side Capital surveyed 110 Pre-Seed and Seed VCs from February 2024 to May 2024 on their investment activity and strategies in 2023 and their plans for 2024, with a focus on Pre-Seed Rounds and Seed Rounds. VCs revealed that they are optimistic about the funding landscape in 2024 and that they have high expectations for revenue levels and growth rates from portfolio companies.

Below we share what we learned.

VCs Were Active in Pre-Seed Rounds in 2023

Surveyed VCs revealed that they were fairly active in Pre-Seed investment last year. Of the VCs surveyed, 87.0% made at least one investment in round sizes of $1M to $2.5M, and 35.2% made more than five investments at this stage.

Seed Round Deal Volume Was Less Than Pre-Seed Round Deal Volume in 2023

VCs reported less deal volume in Seed Rounds in 2023 as compared to Pre-Seed Rounds during the same period. Only 12.1% of surveyed VCs made more than five investments at this stage, and 25.9% made no investments at all. The majority (62.0%) made between one and four investments at this stage.

Investment Outlook Is Optimistic in 2024

Nearly half (45.4%) of respondents plan to make five to nine new investments in 2024, which is a significant increase from 2023, and 24.1% said they planned to make 10 or more investments this year. All respondents planned to make at least one investment, which indicates a more positive outlook from 2023.

Pre-Seed Fundraising: What VCs Expect from Founders in 2024

At the Pre-Seed fundraising stage, only 46.3% of surveyed VCs will invest in a pre-revenue startup, 27.4% will invest in a startup with sub-$150K annual recurring revenue (ARR), and 14.7% require $150K – $499K in ARR. For some surveyed VCs, revenue expectations can be even higher: 11.7% said they required startups to have $500K or more in ARR.

Growth expectations are high for Pre-Seed Rounds, with 34.8% of surveyed VCs expecting startups to double year over year at this stage, and 37% expecting startups to triple year over year.

Seed Fundraising: What VCs Expect from Founders in 2024

Expectations vary a lot for startups raising their seed rounds. At this stage, 17% of surveyed VCs will invest at pre-revenue, but 24% want to see ARR of $1M or more. That’s a big change from four years ago, when $1M or more in ARR was the criteria for Series A funding.

Surveyed VCs expect aggressive growth at this stage, with 47% investing in startups that are doubling year over year and 34% investing in startups that are tripling year over year.

Most VCs Recommend 6-12 Months of Runway

The majority (53.7%) of surveyed VCs advise their portfolio companies to maintain six to twelve months of runway before raising their next round. Only 29.6% of VCs advise startups to have over 18 months of runway.

Capital Efficiency Is More Important Than Ever

VCs reported that, in this leaner landscape, they are placing a greater emphasis on capital efficiency for portfolio companies. For 81.5% of respondents, capital efficiency is more important than ever before. The survey included an option for respondents to indicate that capital efficiency was unimportant, but not a single respondent selected it.

Roughly One Third of VCs Have Changed Their Investment Thesis

We asked respondents to write in answers about how their firm’s investment thesis has changed in 2024. Below we break down the results of those write-in answers.

Summary of Investment Thesis Changes in 2024

No Change (58%) The majority respondents indicated that their investment thesis has not changed significantly from 2023.

More Focus on Specific Areas (15%) Some VCs have an increased focus on specific sectors such as health, cyber, AI, and cybersecurity. They’re putting a greater emphasis on software, particularly AI-powered applications, and avoiding certain sectors like consumer and hardware.

“Like everyone else, [we have] more interest in AI-powered applications.”

– Survey respondent

Adjustments in Investment Strategy (10%) Some VCs are shifting to smaller check sizes. They indicated more capital allocation for Pre-Seed and they are rightsizing investment amounts to achieve more significant ownership.

Greater Sensitivity to Valuations and Due Diligence (7%) VCs are more sensitive to valuations, ensuring companies have more runway, and conducting more thorough due diligence. They’re also focusing on financing risk, revenue, traction KPIs, and efficient use of capital.

“[We’re] thinking more about financing risk and making sure companies have more runway.”

– Survey respondent

Increased Sector Preferences and Deal Dynamics (5%) A small subset of VCs have a growing preference for companies with experienced founders, significant revenue, and efficient burn rates. They’re avoiding overinvested spaces like sales-enablement software and sectors that are seen as high risk for next-round funding.

“[We’re] rarely taking pre-product risk unless the team has prior operating experience.”

– Survey respondent

No Specific Answer or N/A (5%) Some responses were “N/A” or did not specify a change in investment thesis.

Final Conclusions from the RSCM 2024 VC Survey

The venture capital landscape in 2024 has adapted to a leaner and more cautious environment. Right Side Capital’s survey reveals a higher bar for revenue expectations and a greater emphasis on capital efficiency than in more bullish periods.

Despite the challenges of 2023, VCs are optimistic about 2024 and plan to increase new investment volume. Overall, VCs are adopting a resilient and forward-looking approach, emphasizing sustainability and capital efficiency to navigate the transformed economic landscape.

Further Reading

Enjoyed this post? Here are a few more posts that you might find just as insightful and engaging.

Report: How Are Pre-Seed and Seed VC Firms Investing in 2024?

The venture market bottomed out from historic highs last year. Total deal volume slumped roughly 50% from 2021’s peak, exit activity hit a ten-year low, and venture fund performance dropped across the industry. These rapid changes have created a new landscape for venture capital, and it’s affected how VCs are investing.

Right Side Capital surveyed 110 Pre-Seed and Seed VCs from February 2024 to May 2024 on their investment activity and strategies in 2023 and their plans for 2024, with a focus on Pre-Seed Rounds and Seed Rounds. VCs revealed that they are optimistic about the funding landscape in 2024 and that they have high expectations for revenue levels and growth rates from portfolio companies.

Below we share what we learned.

VCs Were Active in Pre-Seed Rounds in 2023

Surveyed VCs revealed that they were fairly active in Pre-Seed investment last year. Of the VCs surveyed, 87.0% made at least one investment in round sizes of $1M to $2.5M, and 35.2% made more than five investments at this stage.

Seed Round Deal Volume Was Less Than Pre-Seed Round Deal Volume in 2023

VCs reported less deal volume in Seed Rounds in 2023 as compared to Pre-Seed Rounds during the same period. Only 12.1% of surveyed VCs made more than five investments at this stage, and 25.9% made no investments at all. The majority (62.0%) made between one and four investments at this stage.

Investment Outlook Is Optimistic in 2024

Nearly half (45.4%) of respondents plan to make five to nine new investments in 2024, which is a significant increase from 2023, and 24.1% said they planned to make 10 or more investments this year. All respondents planned to make at least one investment, which indicates a more positive outlook from 2023.

Pre-Seed Fundraising: What VCs Expect from Founders in 2024

At the Pre-Seed fundraising stage, only 46.3% of surveyed VCs will invest in a pre-revenue startup, 27.4% will invest in a startup with sub-$150K annual recurring revenue (ARR), and 14.7% require $150K – $499K in ARR. For some surveyed VCs, revenue expectations can be even higher: 11.7% said they required startups to have $500K or more in ARR.

Growth expectations are high for Pre-Seed Rounds, with 34.8% of surveyed VCs expecting startups to double year over year at this stage, and 37% expecting startups to triple year over year.

Seed Fundraising: What VCs Expect from Founders in 2024

Expectations vary a lot for startups raising their seed rounds. At this stage, 17% of surveyed VCs will invest at pre-revenue, but 24% want to see ARR of $1M or more. That’s a big change from four years ago, when $1M or more in ARR was the criteria for Series A funding.

Surveyed VCs expect aggressive growth at this stage, with 47% investing in startups that are doubling year over year and 34% investing in startups that are tripling year over year.

Most VCs Recommend 6-12 Months of Runway

The majority (53.7%) of surveyed VCs advise their portfolio companies to maintain six to twelve months of runway before raising their next round. Only 29.6% of VCs advise startups to have over 18 months of runway.

Capital Efficiency Is More Important Than Ever

VCs reported that, in this leaner landscape, they are placing a greater emphasis on capital efficiency for portfolio companies. For 81.5% of respondents, capital efficiency is more important than ever before. The survey included an option for respondents to indicate that capital efficiency was unimportant, but not a single respondent selected it.

Roughly One Third of VCs Have Changed Their Investment Thesis

We asked respondents to write in answers about how their firm’s investment thesis has changed in 2024. Below we break down the results of those write-in answers.

Summary of Investment Thesis Changes in 2024

No Change (58%) The majority respondents indicated that their investment thesis has not changed significantly from 2023.

More Focus on Specific Areas (15%) Some VCs have an increased focus on specific sectors such as health, cyber, AI, and cybersecurity. They’re putting a greater emphasis on software, particularly AI-powered applications, and avoiding certain sectors like consumer and hardware.

“Like everyone else, [we have] more interest in AI-powered applications.”

– Survey respondent

Adjustments in Investment Strategy (10%) Some VCs are shifting to smaller check sizes. They indicated more capital allocation for Pre-Seed and they are rightsizing investment amounts to achieve more significant ownership.

Greater Sensitivity to Valuations and Due Diligence (7%) VCs are more sensitive to valuations, ensuring companies have more runway, and conducting more thorough due diligence. They’re also focusing on financing risk, revenue, traction KPIs, and efficient use of capital.

“[We’re] thinking more about financing risk and making sure companies have more runway.”

– Survey respondent

Increased Sector Preferences and Deal Dynamics (5%) A small subset of VCs have a growing preference for companies with experienced founders, significant revenue, and efficient burn rates. They’re avoiding overinvested spaces like sales-enablement software and sectors that are seen as high risk for next-round funding.

“[We’re] rarely taking pre-product risk unless the team has prior operating experience.”

– Survey respondent

No Specific Answer or N/A (5%) Some responses were “N/A” or did not specify a change in investment thesis.

Final Conclusions from the RSCM 2024 VC Survey

The venture capital landscape in 2024 has adapted to a leaner and more cautious environment. Right Side Capital’s survey reveals a higher bar for revenue expectations and a greater emphasis on capital efficiency than in more bullish periods.

Despite the challenges of 2023, VCs are optimistic about 2024 and plan to increase new investment volume. Overall, VCs are adopting a resilient and forward-looking approach, emphasizing sustainability and capital efficiency to navigate the transformed economic landscape.

The Founder-Led Sales Process that Drove $600K in ARR

Founding a company is challenging enough without also heading your sales process. But Kelvin Johnson, the CEO and co-founder of Brevity, believes that leading sales is an opportunity for founders to get to know their customers. He’s developed a five-step sales process that tailors to a prospect’s pain points and adapts to his customer’s needs, while also allowing him to learn his Ideal Customer Profile (ICP) and build trust.

In a recent webinar for Right Side Capital Managment’s portfolio companies, Kelvin sat down with RSCM’s “Sales Doctor” Paul Swiencicki to share how he’s used his founder-led sales process to drive $600K in annual recurring revenue (ARR) for Brevity’s core product, an AI-powered sales role playing tool.

Below, we outline Kelvin’s sales process and highlight some of his key insights.

Step One: The Qualification Call

Kelvin uses a qualification call to kick off his relationship with a prospect to determine if his product will be a good fit for them. He makes sure the call takes place before any additional time is spent on the sales process. “We start off these conversations by asking, ‘What piqued your interest to even take this call?’ and ‘What will a successful outcome look like at the end of our 30 minute conversation?’ So at least we have an anchor point as to what’s important to them,” says Kelvin. “We may have our own agenda, but I really want to figure out what is important to this prospect. And I want to make sure we maximize our time.”

Qualifying leads is a critical part of sales success. A founder’s time is best spent on  prospects where their product can make a big impact. “At first, we weren’t doing a great job of qualifying our leads. But over time, we ended up discovering that our best ICP is somebody that’s at the sales manager level or above, who oversees at minimum 10 sales reps. That’s where it starts to make sense for us,” says Kelvin. “You’ve got to qualify hard to close easy.”

Step Two: The Custom Test Drive Demo

Kelvin has learned that a demo is much more effective when he caters to a prospect’s specific pain points. He schedules a “call before the call” in advance of a demo to gather information. “In the call before the call, we’re trying to figure out where a prospect is experiencing the greatest friction, what initiatives they have in place to alleviate that friction, and what have been the results of those initiatives,” says Kelvin. “We’re also trying to get into the weeds of what key success metrics matter the most to them, a.k.a., ‘How do you plan to justify this investment internally?’”

Once he knows what’s important to his prospect, he can give them a customized demo. Demonstrating he paid attention is also a great way to build trust and strengthen his relationship with the prospect. “You have to shut up, listen, and then here’s the most important part: As soon as you hear what the customer says, that’s the only thing you demo,” says Paul. “What I find is that everyone just does a spray and pray demo. It’s all just one size fits all. That’s not what prospects want. The first thing you have to demo is what they said their problem is. Otherwise, they’re not going to listen.”

Step Three: The Business Justification Review

After the demo, Kelvin sends the stakeholders a document that captures everything he’s learned about them thus far. The document outlines their problem, what they’ve already tried, the outcomes and results of those past solutions, what they stand to gain by using Kelvin’s product and, most importantly, what they stand to lose if they do nothing. “One of the most important sections in the document is about the cost of inaction – the lost revenue calculator,” says Kelvin. “The biggest thing we’re all competing with is doing nothing.”

He then schedules a call to go over the document with the stakeholders, so he can put all of the relevant information in front of the prospect in one tidy package. “This makes our champions look so good when they present to their CFO along with a supporting Excel sheet that shows them the cost of doing nothing, of not buying our product. That shows them why they need to start now,” says Kelvin.

Step Four: The Kick-Off Call

Kelvin is thinking about retention before he’s even closed the deal, which ultimately leads to higher ARR. Research has shown that retaining customers is cheaper than acquiring new ones and that improving retention by just 5% can drive profits up over 25%.

Kelvin sends the prospect a plan for implementation that sets expectations and shows clear milestones and goals. “We understand how overwhelming new software can be,” says Kelvin. “I’m trying to break it down into very digestible pieces.” He asks his new customer two questions: “Before the end of our renewal process, what are you going to brag to your board about?” and “What is one high-impact scenario where we can deliver first value?” Kelvin and his team can then have a kickoff call that caters to these primary objectives.

Step Five: The First Value Check-In

About one month after closing the deal, Kelvin schedules a call with his new customer to ensure they’ve hit their initial goal. “Our average customer is getting to first value within 17 days. Not because they’re focusing on uploading their entire sales playbook into our roleplaying software. No, no, no. We’re focusing on one high impact, high stakes, high frequency scenario,” says Kelvin.

From there, Kelvin can work with the customer to expand Brevity’s usage and ensure the customer is getting what they need. “I tell them, ‘It’s our job to make this simplified for you and your team,’” says Kelvin. “Everybody learns how to maximize the utility of the software within the first month. And then once we’ve nailed that, then we get to show ongoing value.”

A Repeatable Process for Building Revenue and Trust

Kelvin’s five-step sales process is a testament to the power of personalized engagement. It emphasizes active listening, customized demonstrations, and transparent communication that not only fosters trust but also ensures alignment between Brevity’s solution and the customer’s needs. By implementing Kelvin’s strategies, you can not only increase your chances of closing deals but also establish credibility, laying a solid foundation for a long-term, successful partnership.

Want to get more expert advice for your startup? Apply for funding from Right Side Capital to gain access to take part in our community of 1800+ founders and gain access to a host of free services including go-to-market, sales, marketing and fundraising advisory.

About Right Side Capital

Right Side Capital is one of the most active VC firms investing in the Pre-VC stage, partnering with 100+ capital efficient tech companies in the USA & Canada every year at an average round size of <$500K.

As a team of former founders and operators, we know that founders tackle problems that are equal parts challenging and inspiring. Building on our 12 years of experience with 1800+ portfolio companies, we’re changing how early stage startups receive funding and support.

Welcome to the RSCM Blog!

Over the years, we've tried to chronicle how our thinking about investing has evolved and capture insights into how startups can improve their chances of success.

Before October 2016, these chronicles lived on Kevin's personal blog, Possible Insight. Going forward, we'll be posting new startup related content on the RSCM blog. For convenience, we've also replicated the relevant Possible Insight posts here.

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