Key Takeaways
- Seed-stage valuations are still reasonable while later-stage multiples remain compressed.
- The best founders are choosing seed-stage institutional partners more carefully than ever.
- Seed-stage losses are bounded; seed-stage winners can return 100x or more.
Venture capital as an asset class underperformed expectations for the 2018 to 2021 vintage years, and the narrative around that period has made some LPs broadly skeptical of early-stage investing. Saim Abbasi thinks that narrative is missing the point, and that seed stage specifically is the most interesting place to be in venture right now.
The Vintage Year Problem
The underperformance story is mostly a late-stage story. Companies that raised Series C and D rounds in 2021 at valuations that required flawless execution to justify have been the primary source of pain. The seed rounds from that same period, written at far more modest valuations, look considerably better because the entry prices were still rational.
The seed market compressed during 2023 and into 2024 as founders became more capital-efficient and investors more selective. That compression created buying opportunities. Companies that would have raised seed rounds at 12 million post-money in 2021 were raising at 8 million in 2023. The same team, the same market, the same product. A materially better entry price.
The Talent Side of the Equation
Something else happened during the 2022 and 2023 market correction that gets less attention: a lot of exceptional operators left well-paying corporate and tech jobs to start companies. The financial calculation changed. Equity in your own company that you control beats equity in a public company you do not, especially when public tech equity is repricing downward.
The quality of the founders Saim Abbasi is meeting at Iron Key Capital has been notably higher since 2023 than it was during the peak years. The desperation that used to drive some early-stage pitches, raise now because capital is available, has been replaced by founders who are building because they have identified a genuine problem and have a specific plan to solve it.
Why the Math Works
Seed-stage investing has a simple mathematical property that makes it attractive even in difficult markets: losses are bounded. A seed check can go to zero, and that is the worst case. But the upside in a power-law market is genuinely unbounded. A seed investment that returns 100x is not unusual in a good vintage. That asymmetry does not exist at later stages, where the multiples on capital are necessarily lower because the entry prices are already higher.
"At the seed stage, you are paying for a team and a thesis. At Series B, you are paying for proof that already exists. The price difference should be much larger than it usually is."