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Growing Seed Capital Matches Rising Valuations – October 2015

by Harry Richardson

  • 09 Oct 2015
  • PE

Seed capital has traditionally been associated with entrepreneurs raising funds from friends and family. While personal contacts can still play a very important part in an entrepreneur’s fundraising, increased investment in venture capital and rising valuations has led to professional venture capital firms making not just seed stage investments, but even pre-seed investments.

Preqin’s Funds in Market database tracks 231 funds targeting seed investments that have closed from 2008 to present. The amount of capital seed stage funds have raised has, since 2011, been steadily rising; according to Preqin data, 2015 is on course to reach the highest level of fundraising by seed funds in history, and surpass 2014’s $1.4bn, higher even than at the height of the dot-com bubble in 2000 when $1.4bn was raised by 19 funds. In comparison, seed funds closed in 2015 have raised an aggregate $1.4bn so far, while the 69 funds currently in market are targeting an aggregate $6bn.

The size of funds targeting seed investments is also growing, in line with the increasing valuations of early stage businesses; 34 funds have closed so far this year, compared to the 49 which closed in 2014 with a similar amount of aggregate capital raised. Despite an increase in average fund size in 2015, 2000 boasts the largest average fund size at $92mn.

US-based managers have raised 146 of all seed stage funds closed since 2008. Israel’s venture capital market is often seen as an extension of the US scene, and so it is perhaps unsurprising that fund managers in Israel have raised nine funds with $833mn in aggregate capital raised since 2008. This places Israel third in terms of aggregate capital raised for seed capital fundraising, behind France, where 12 funds have collected a total of $866mn since 2008.

Notably, even the largest US seed stage funds are raised by specialized firms, either focused on investing in seed stage businesses or venture capital more generally. The US-based fund manager that has raised the largest seed funds since 2008, Ignition Ventures, is firmly focused on early stage investments. In contrast, the largest France-based seed fund in Preqin’s database, InnoBio, is managed by Bpifrance Investissement, a firm which makes both venture capital and buyout investments.

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