Pre-seed VC is Dead. Long live pre-seed VC.

Luke Smith

Partner + Investor

June 21, 2021


It has never been a better time to be a European Entrepreneur” – so claimed Atomico in their report on the state of the European tech industry last year. The report outlined huge improvements in the European tech ecosystem that have enabled quantum leaps in headline outcomes – no fewer than 35 European software companies have achieved $B valuations since 2003.

As a consequence (and in part a driver) of this improvement in infrastructure, levels of capital available in Europe to early stage companies have grown significantly. 10 new institutional funds launched in Europe between 2011 and 2015 with fund sizes >$40m. Leading US VCs are becoming ever more active funding 70% of true growth capital rounds in Europe, and the total number of funding rounds completed has grown at a compounded rate of over 30% for each of the last 5 years.

The funding options for businesses with some form of traction have therefore multiplied. Significant growth in capital inflows in the last 5 years at growth stages of investment (largely from established US domiciled funds) has intensified competition amongst smaller (largely European based) funds at Series A and seed stages of the investment life cycle. According to CrunchBase, deal volume in Europe at seed stage grew at a compound rate of 45% pa between 2011 and 2014 with average round size growing by 65% to c $500k over the period.


Institutions have been, and still are, ill equipped to embrace entrepreneurs who arrive at their door armed only with a slide-deck and a passionate idea. “Seed stage” investment generally requires a product in market, a backable team with appropriate experience, a well defined go-to-market strategy, commercial traction and early revenues from the first handful of customers, a financial plan based on assumptions that can be validated by early experience, and the foundations of an early corporate governance model.

Strong idea stage propositions have none of these characteristics. They are simply an idea, well thought through, hoping to address significant market dislocations or gaps that the entrepreneur has personally experienced. There will generally be only one person. There will be no means to validate anything other than the market opportunity and the track record of the individual – no corporate governance, no financial model, no MVP, no detailed roadmap, and for a non-technical founder, no development expertise. For an institutional VC equipped with a typical investment team, the execution risk of backing ideas is simply too high – the skills are not in place to provide the necessary support, increasing both duration and execution risks of the investment.

Consequently pre-seed round funding is less well defined, entrepreneurs are forced to “boot-strap”, build early stage teams with limited capital, and have limited ability to attract high quality technical support. Early product iterations take longer to complete and are done so at low levels of quality by low-cost, outsourced tech teams leading to later “technical debt”. Avoidable mistakes are made in deployment, marketing and hiring. Work environments are typically compromised in search of economy. Significant amounts of leadership focus are sucked into raising possibly multiple, small early stage rounds from friends, family and angel groups. It is no surprise that the failure rate at this stage is often so high, even for fundamentally sound ideas.


Embracing propositions at the idea stage therefore requires a different VC model, one that serves to fundamentally reduce the key execution risks. The most obvious change, co-locating entrepreneurs with the investment team, not only alleviates an early cost issue for the entrepreneur, but for active investors allows proximity for hands on involvement and a continuous framework for informal governance. This basic level of model extension is well known and widely deployed…but is not enough.

The key challenge is getting the idea to market with speed, and with sufficiently guaranteed quality. Simply providing space and adhoc advice will not achieve this alone. Pre-seed VC investing therefore requires a more hands on approach – the development of an in-house operational capability, in particular with product, development and marketing functions. Providing these facilities directly facilitates rapid go-to-market without the need for an entrepreneur to outsource or seek to build early technical teams which he/she probably cannot afford.

With a rapid acceleration of product and marketing delivery at high quality, founders are free to think about the critical challenges of building a business without delay. Over time the operational unit builds knowledge and specialism in a wide variety of deployments, they standardise their approach, reduce errors, and further increase their efficiency. Faster market validation not only delivers more rapid growth on the upside, but also reduces investment exposure for the VC and the down-side. The lean business requires lower levels of capital to succeed. Everybody wins.

Forward Partners has fully embraced this model of investment. It supports its portfolio businesses on The Path Forward, a programme to take transaction-focused digital startups from raw ideas to valuable businesses in the space of 12 months. It’s a practical guide for entrepreneurs that stresses the importance of acquiring a deep understanding of customers’ real needs, building emotional resonance into products from the start, quickly getting to revenues, growth and scalable economics.

If you have a spotted a clear market gap and have a strong idea of how to make it happen, then please get in touch. More details on how we partner with idea stage businesses are available here

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Luke Smith

Partner + Investor

June 21, 2021

Luke joined Forward Partners from REV Venture Partners, a corporate VC, where he was responsible for deal origination, investment due diligence and portfolio reporting. He was previously a consultant with the strategy consultancy Oliver Wyman, where he worked across the retail, aviation, healthcare and FMCG sectors. Luke originally planned a career in science and he holds a PhD in biochemistry. His focus at Forward Partners is on sourcing and executing new investments.