INSUBCONTINENT EXCLUSIVE:
As expectations from seed investors intensify, a new stage of investment has established itself earlier in the venture-backed company life
cycle.Known as “pre-seed” investing, one of the first legitimate outfits to double down on the stage has refueled, closing its second
fund on $77 million.Afore Capital’s sophomore fund is likely the largest pool of venture capital yet to focus exclusively on pre-seed
companies, or pre-product businesses seeking their first bout of institutional capital
In many cases, a pre-seed startup may even be “pre-idea,” yet to fully incorporate
While some funds are happy to invest that early, Afore seeks slightly more mature companies.Afore invests between $500,000 and $1 million in
As it kicks off its second fund, founding partners Anamitra Banerji and Gaurav Jain tell TechCrunch they plan to lead all of their
investments.
We have the opportunity to build a firm that defines a category. - Afore founding partner Anamitra BanerjiStandouts in
Afore’s existing portfolio include the no-fee credit card company Petal — which has raised roughly $50 million to date — mobile
executive coaching business BetterUp, childcare information platform Winnie and Modern Health, a B2B mental wellness platform.Afore
portfolio companies have raised more than $360 million in follow-on funding, with an aggregate market cap of $1.5 billion, Jain, the
founding product manager at Android Nexus and former principal at Founder Collective, tells TechCrunch
“These are high-quality teams with high-quality projects and ideas.”Jain and Banerji — a founding product manager at Twitter and
former partner at Foundation Capital — began raising capital for Afore’s $47 million debut fund in 2016
Since then, the landscape for seed investing has shifted
Early-stage investors have begun funneling larger sums of capital to standout teams at the seed, while billion-dollar venture capital funds
set aside capital for serial entrepreneurs working on their next big idea
As a result, deal sizes have swelled and deal count has shrunk simultaneously.“Pre-seed has replaced seed in the venture ecosystem,”
“We saw this early as a result of both of us having been at funds
We knew that this was going to be a massive category just like seed was before it
Now we think it’s clearly here to stay and we have the opportunity to build a firm that defines a category.”Since launching the firm,
the pair explain they’ve noticed more and more founders explicitly stating that they are in the market for a pre-seed round, a statement
you wouldn’t have heard as recently as two years ago.This is a result of Afore’s efforts to legitimize the stage through investments and
programming, including its annual Pre-Seed Summit
Though Afore is certainly not the only VC fund focused on the earliest stage of startup investing — other firms deploying capital at the
stage include Hustle Fund, which closed an $11.8 million debut fund last year, plus the $20 million immigrant-focused pre-seed fund
Unshackled Ventures and the predominant seed and pre-seed stage firm Precursor Ventures, which announced a $31 million second fund earlier
this year.In the past year alone, more than $200 million has been dedicated to the pre-seed stage, with at least nine new funds launching to
nurture early-stage startups.More and more firms are setting up shop at the pre-seed stage as competition at the seed stage reaches new
As we’ve previously reported, monster funds are becoming increasingly active at the seed stage, muscling seed funds out of top deals with
While the pre-seed stage, for the most part, remains protected from competition at the later stage, these firms still have to
compete.“Nobody wants to lose sight of a deal, so they are willing to toss small amounts of capital very early behind interesting
“But frankly, we aren’t sure if it’s good for a company to raise that much capital that early in their life cycle.”Working with a
fund that isn’t passionate about what you are building or familiar with the plights of the stage of your business is terrible for
Pairing with a focused fund like Afore, on the other hand, allows for “incentive alignment.”Afore invests across all industries,
preferring to back startups in categories “before they are categories.”“What we are looking for is deep authenticity and passion
around the product they are building,” says Banerji
“Ideas on their own aren’t enough
Founder resumes on their own aren’t enough
While we do care about all of those aspects, we get crazy about their clarity of thought in the short term.”“We don’t take the point
of view of ‘here is some money, it’s OK to lose it,’ ” he adds
“For us to invest, the founder must be all in
And we generally don’t invest in celebrity founders; we are going after the underdog founder.”
