There’s been some chatter recently from those who invest at the early stages about large private equity firms starting to make investments much earlier in the lifecycle — Series A, for example. For some, like CFV Ventures Managing Partner Nat Clarkson, this could be a good thing.
“So, we're not seeing it as much in our space because we’re so early, but it is starting to affect our investment thesis and ecosystem,” Clarkson says.
He says if this becomes a trend, it’s probably a net positive for his firm, which is a seed and Series A financial technology fund.
“We're very early stage and it typically is hard capital to get,” he says. “A lot of those other investors that have more capital to deploy will look later stage — so they're large B rounds, C rounds, beyond growth equity. By increasing competition there, it increases valuations.”
So, when a portfolio company of CFV Ventures does hit, it starts to get valued up at that increased level.
Clarkson says he’s also seeing some of the larger funds set up seed funds, and some of the medium-sized funds are putting in placeholder investments — for instance a $250,000 convertible note that gets them a spot on the cap table.
“It's an option, in many ways, so that they can invest more if and when that one takes off, and it’s relatively low risk if it doesn't.”
Still, Clarkson says these moves by larger firms are not yet impacting his firm, which is focused around the seed level. But the investment landscape is always changing.
“The joke is that series A used to be the first institutional capital,” he says. “Now, it's the fifth letter of the alphabet.
Clarkson spoke on the Smart Business Dealmakers Podcast about what he’s seeing at the seed stage, and how firms at his level may look to adjust their strategies if larger firms became a player in the mix. Hit play below to catch the full conversation.