Scattering Seeds in the Wind 🌪️

Hey there,

Welcome to where I write about my journey from a stable Big Tech Software Engineering job to the wild and volatile world of Venture Capital.

So I've been sitting here for the past hour, staring at my spreadsheet of potential investments, and I can't help but laugh at myself. Two years ago, I was debugging code and worrying about sprint deadlines. Now I'm trying to predict which 22-year-old founder might build the next billion-dollar company. Life comes at you fast, huh?

Today I want to pull back the curtain on something that's been occupying my brain lately: the actual economics of seed-stage VC. Not the glamorous TechCrunch headlines or the "I invested in [insert unicorn] before anyone else" humble brags you hear at conferences. I'm talking about the cold, hard math that determines whether I'll ever make any money in this career or if I should've just stayed writing code.

Spoiler alert: this shit is HARD. Like, statistically improbable hard. But that's what makes it fascinating... right?

🧮 The Basic Building Blocks of Seed Funds

Let me break down how these funds actually work, because I sure as hell didn't understand it when I was on the engineering side:

Fund Size: Most seed funds are relatively small - typically $10M to $50M for first-time managers. The average is around $30M. Though some of the OGs have scaled up significantly - Uncork Capital started with less than $1M in 2004 and just raised a $225M fund in 2025. BoxGroup, which used to be a small NYC angel outfit, now manages over $400M. But most seed VCs are still sub-$100M operations.

Check Size: We're typically writing initial checks between $100K and $1M. First Round Capital, one of the OGs, usually drops about $500K per initial investment. BoxGroup caps their first checks at around $1M. With the median seed round hovering around $2.5M at a $15M post-money valuation, no single seed fund fills the entire round. Instead, we all play nice together (mostly) and syndicate deals.

Ownership Targets: This is where things get interesting. Most seed funds aim to own somewhere between 5-15% of a company post-investment. Uncork targets 10-15% ownership, which means they're often leading or co-leading rounds. The math is simple: $1M invested at a $10M post-money valuation = 10% ownership. But that ownership percentage is crucial because it determines how much a win actually matters to your fund.

Portfolio Size: How many companies should a fund back? It varies wildly. A typical $30M fund might invest in 30 companies. BoxGroup, with their larger funds, expects to back 40-50 startups per fund. More companies = more diversification but less time per company. Fewer companies = more focus but higher risk if you picked wrong. There's no magic number, but you need enough shots on goal that you might actually hit something.

Follow-On Reserves: This is the part that blew my mind when I first joined VC. Seed funds typically reserve 40-60% of their capital for follow-on investments in their winners. That means if you raise a $50M fund, only $20-30M goes to initial investments. The rest is held back to double down on the companies that don't immediately crash and burn. It's a delicate balance - reserve too much and you can't make enough initial investments; reserve too little and you get diluted out of your winners.

Management Fees & Fund Horizon: Like all VC funds, seed funds charge ~2% annual management fees and take ~20% of the profits (carry). Over a 10-year fund life, those 2% fees add up to ~20% of the fund. Most seed funds aim to deploy their initial investments in the first 2-3 years, then focus on follow-ons and portfolio management for the remaining time.

When I first learned all this, I thought, "Wait, so I only get to make 30-40 investments over 3 years? And most of them will fail?"

Yep. Welcome to VC. 😅

🔍 Real-World Examples: How the Big Dogs Do It

Let's look at how some prominent seed funds actually implement these frameworks:

First Round Capital has been around since 2004 and typically invests about $500K initially. They've made hundreds of investments over the years, betting that a few massive wins will outweigh the many losses. They had hits like Dollar Shave Club and Warby Parker. Their approach is basically "spread the net wide" with small initial checks, then follow on aggressively in the winners.

Uncork Capital (formerly SoftTech VC) shows how a micro-VC evolves over time. They started with a tiny <$1M fund in 2004, grew to $55M by 2012, $100M by 2016, and now they're at $225M for their eighth fund. Despite growing, they've stayed seed-focused, aiming for 10-15% ownership in each startup. They also raise separate "opportunity funds" to double down on their winners in later rounds.

BoxGroup used to be known for making many small bets as a super-angel fund in NYC. They've scaled up dramatically, raising $425M across two funds in 2023. But they're still making relatively small initial investments ($500K-$1M) in 40-50 startups per fund. They're comfortable not having the biggest ownership in every deal, focusing instead on being in lots of high-potential companies.

Looking at these examples, I realize there's no "right way" to do seed investing. Some take many small swings, others make fewer, larger bets. But they're all playing the same game: trying to find that one company that returns the entire fund.

📊 The Harsh Math of Seed Investing

Here's the truth that keeps me up at night: most startups fail. Like, a lot of them. Roughly 75% of venture-backed startups never return capital to investors. Only about 13% of seed-funded companies even make it to Series A.

So in a portfolio of 30 companies, maybe 5-10 reach Series A, 1-2 reach a big exit, and the rest... well, they die or limp along forever. That one big winner has to carry the entire fund's returns.

And the bar is HIGH. LPs (the investors in VC funds) expect seed funds to return at least 3x their money. That's a 300% return over ~10 years. If a seed fund only doubles their money (2x), that's usually not enough to raise another fund.

Let's do some back-of-napkin math that haunts me: If I invest $1M for 10% ownership in a startup, and that stake dilutes to 5% by exit, to return a $50M fund from that one deal, the company needs to exit at $1 BILLION. A literal unicorn. If my ownership is lower or my fund bigger, I might need a $10B+ outcome.

This is why VCs are obsessed with "fund returners" - investments that can return the entire fund. We're all searching for outliers. A typical portfolio might yield a bunch of 1-3x returns, a couple of 5-10x outcomes, and hopefully one 100x monster that changes everything.

It's like playing a high-stakes lottery with many tickets. You know most won't pay off, but one could hit the jackpot. And you need to make sure you own enough of that jackpot winner for it to matter.

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⚖️ The Balancing Act: Trade-Offs That Make Me Question My Life Choices

Every day as a seed investor involves navigating trade-offs. There's no perfect strategy - optimizing one aspect means compromising another:

Small Fund vs. Large Fund: Smaller funds ($10M-$25M) can more easily achieve high multiples - turning $10M into $30M is doable with a couple of decent exits. But tiny funds generate little in management fees (gotta keep the lights on!) and might not be able to follow-on effectively. Large funds ($150M+) let you write bigger checks and support companies longer, but mathematically they're harder to scale in returns. Many VCs believe "smaller is better" for performance, which is why we saw an explosion of sub-$100M funds in the last decade.

High Ownership vs. Low Ownership: Do I put more eggs in fewer baskets, or spread widely? High ownership means if the company wins, I really win. It also means more influence with the startup. But it limits how many startups I can back. Low ownership with many companies increases the chances I'll have a winner, but I might own just a sliver of it. Most seed funds choose a middle ground - around 30 companies at ~7-10% each.

Follow-On Strategy: The traditional view is to hold significant reserves (~50% of fund) to follow-on in winners. But some question this orthodoxy. If you're great at picking at seed but don't have later-stage expertise, maybe it's better to put 100% into seed rounds. There's also the risk that by the time you know which company is a winner, it's raising at a 20x higher valuation - your pro-rata might be extremely costly. Plus, there's the human bias of throwing good money after bad, keeping zombie companies alive out of loyalty.

Fund Deployment Pacing: How fast should I invest? In frothy times (2020-2021), some seed funds deployed their whole fund in 1-2 years. That works if you raise the next fund quickly - but if the market turns, you're screwed. Generally, a 2-3 year deployment for initial investments is standard. Invest too fast and you might overpay in hype cycles; invest too slow and you might miss opportunities or signal to LPs that you can't find enough good deals.

I try to be steady - about one deal per month - but stay flexible. If once-in-a-decade opportunities flood in (like generative AI startups in 2023), I don't want to artificially hold back. If the pipeline quality drops, it's okay to pause. Just remember: LPs generally expect you'll be coming back for the next fund after ~3 years, so you need to show progress by then.

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🤔 Final Thoughts: Why Am I Doing This Again?

Seed-stage venture economics are equal parts spreadsheets and crystal balls. I can model out my fund with all these assumptions - X companies, Y% ownership, Z% reserves, target 3x return - and then life happens. Market cycles swing, a pandemic hits, or a surprise breakout needs more capital than I budgeted.

The U.S. seed market has evolved dramatically: it's more competitive (hundreds of micro-funds launched in the last decade), rounds are bigger and pricier than a few years ago (median seed valuations ~$15M now vs ~$6M in 2015), and top seed funds have more resources than ever. Yet, the fundamental economics remain: a seed fund's success hinges on a few big wins.

When you need a 100x outcome to make your fund work, you structure everything around finding that 100x. It's why we seem obsessed with "massive TAMs" and "world-changing technology" - we're not being hyperbolic; we literally need companies that can become enormous to make our math work.

So the next time you see a seed investor excitedly backing what seems like a wacky idea, remember: we're playing a calculated game dictated by these economics. It's part art, part science, part delusion, and part luck.

As for me? I'll keep juggling ownership targets and reserve ratios, chasing that next big win, and questioning whether I should've just stayed writing code. But hey, at least I get to wear jeans to work and tell people I'm "in venture" at parties.

Until next time!

Signing off and signing zero checks,

SWEdonym

P.S. Have you ever made a career move that seemed logical on paper but keeps you up at night with its statistical improbability? Drop a comment below - misery loves company! 😂