Expect to see a surge of new startups later this year and in 2024.
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Asymmetric is one of the firms that has professionalized the very early seed investing market, previously dominated by angel investors and smaller seed funds. The firm raised its first fund of $105 million in 2021 at the market peak. Its team is spread across New York, Boston and San Francisco.
The firm has invested more than half of its fund since 2021. Eighteen of those investments have been in companies where it has led with larger checks of more than $1 million. It’s invested in another 43 portfolio companies with smaller checks between $100,000 and $150,000.
Asymmetric’s entrance on the scene came as seed funding overall grew in 2021 and through the first half of 2022 before flattening and cutting back, according to an analysis of Crunchbase data. Based on the increase in funding since 2021, more companies than ever are milling around at seed as Series A funding has gotten harder.
Valuation shifts lead to seed formation
As the funding environment has gotten tougher for startups, many employees will begin to think through their career choices, Biederman predicts.
“Candidly, over the last 18 months, a lot of companies that didn’t deserve to got funded in the ‘before times,’ and are now finding it really hard to get funded,” he said.
Companies that raised at high valuations are now seeing those valuations cut back drastically, which could prompt talented employees to leave. That, in turn, could lead to growth in new high-quality companies, Biederman predicts.
The seed comeback
While Biederman expects a new wave of startups to come to market, in the time period the firm has been investing “the pre-seed stage has gotten more competitive over the last two years — not less so,” he said.
Through the venture downturn of the past two years, investors are focused on earmarking investments in the earlier stages, he said. As the late-stage venture market bottomed out due to the public market slump, large funds are putting more effort toward Series A. And the Series A investors are refocused on seed.
As investors slow down their pace, companies take longer to get to Series A, Crunchbase data shows.
Asymmetric invests pre-revenue, pre-traction, sometimes even before a founder has an idea. Most seed investors we talk with like to see some customer adoption or “traction” of a product even if they are not yet paying, before they will invest.
In a competitive market with many seed investors, you have to compromise on some points to invest in promising companies, Biederman said — whether that be the quality of the people, size of the market, traction or price.
“We’ll never compromise on people,” he said.
And it’s really hard to compromise on market size, as the price is set by the market.
“We’re willing to compromise on traction, because we’re able to think critically about ecosystems,” Biederman said.
“The market actually probably over-values traction a little bit, and relatively undervalues people,” he said.
One thing that has surprised Biederman is that everyone has become “valuation sensitive.” Many firms that previously said valuations do not matter as we just want to get into the best deals, are now very focused on valuation.
“Everybody wants to make sure you set the company up to succeed in the following round,” he said, and “nobody wants to be the one that does the terrible deal that gets all the PR.”
From his vantage, deals are in the range of $1 million to $3 million for 10% to 20% of the company, taking into account factors such as founding team experience and market size. Post-money ranges from $10 million to $20 million but is closer to $10 million in most cases.
Asymmetric portfolio companies
Biederman highlighted several of the firm’s portfolio companies in our conversation. They include:
- EvolutionIQ, which assesses insurance claim compensation assisted by AI tools that can process a large amount of data to get to a fast resolution, and then apply human decision-making;
- UpSmith, an upscaling and retraining platform for workers ranging from Uber drivers to HVAC technicians;
- Miga, which offers remote patient heart health monitoring, and partners with primary care providers.
Although it has invested in startups that use artificial intelligence technology, the firm is not overly focused on AI. “There are these cycles of hype, and what we try to do as a firm is to screen all of that out and just continue finding software companies that create value for their customers,” Biederman said.
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Illustration: Dom Guzman
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