When I entered the VC business 10 years ago, I tried to keep thinking about venture capital as a business, where the key focus area was on meeting the needs of our target customers — entrepreneurs and limited partner investors.
In the case of entrepreneurs, those needs have changed radically in these last 10 years. The surge in seed investing over the last few years has been well-reported and analyzed. With advances in cloud computing, open source infrastructure, development tools and general “Lean Start-Up” techniques, entrepreneurs need less capital than ever before. And when entrepreneurs’ needs change (i.e., requiring less capital), smart investors adjust to meet those new needs. Hence, the rise of angels, super-angels, incubators, accelerators, micro-VCs and VC-led seed programs.
But as the “Great Seed Experiment” (as my partner, Michael Greeley, calls it) matures, a new trend is emerging. Entrepreneurs are beginning to learn the difference between what I’ll call Passive Seeds and Activist Seeds. And entrepreneurs are learning that the difference between the two, although somewhat subtle, matters greatly.
Passive Seeds are when a VC invests a small amount of money (for a $200-500M mid-sized fund, typically $250k or less, for a large $1B fund, perhaps $500k or less), to achieve a very small amount of ownership (typically less than 5%) to simply create an option to participate as a more meaningful investor in the future. Passive seed programs get most of the press attention because of their sheer volume.
