Investors will almost never approach a founder to increase their salary or equity. Because it's not top-of-mind for VCs, founders must take ownership and schedule regular compensation reviews to prevent the issue from festering and becoming a breaking point.
Seed investing yields the highest returns in venture capital because it's the least efficient market. This allows investors to buy into future breakout companies at low, non-obvious prices before risk is removed and competition drives up valuations in later stages.
The ideal seed investor isn't just a finance professional. They are a respected founder of a successful company in a hot, emerging field. This status grants them credibility, access, and respect from other founders, leading to superior deal flow that cannot be accessed otherwise.
AI companies built to fill feature gaps on top of foundation models are at high risk. As core models rapidly improve, they often absorb these adjacent features, disintermediating the "wrapper" companies. Their early-adopter customers are also the quickest to switch to better tools.
An unwritten "founder code" exists in Silicon Valley. A key violation is abandoning a well-performing, venture-backed company to start a new one in a hotter space (e.g., AI). This prematurely sells out investors and violates the trust placed in the founder.
Despite high returns, large VCs avoid seed investing because it's operationally intense (requiring 10-25x more meetings), access to top founders is a bottleneck, and their large funds require deploying big checks that are incompatible with small seed round sizes.
Extensive diligence on a seed-stage company's market or product is often wasted effort. The majority of successful seed investments pivot to a completely different business model, making the founding team's quality and resilience the most crucial factor to evaluate.
A significant, yet uncommon, sign of an LP-friendly VC is returning a portion of the carry from Special Purpose Vehicles (SPVs) to the original fund's LPs. This acknowledges that the main fund's resources and reputation sourced the follow-on investment opportunity in the first place.
While AI makes product development cheaper, the most promising AI startups raise more capital, not less. This is driven by high ongoing costs from using the latest models and investors' desire to pour capital into potential category winners to secure market dominance quickly.
To succeed in seed investing, a high-volume approach is necessary. Given that only 5-10 companies produce massive, power-law returns each year, making more investments (e.g., 50 per year) mathematically increases a fund's likelihood of being in one of those rare breakouts.
SaaS business models derive value from long-term customer relationships. AI's disruptive potential makes the 10-year outlook for any software company extremely uncertain. This means the entire SaaS category is currently mispriced, though it's unclear if companies are over or undervalued.
The Qualified Small Business Stock (QSBS) rule allows for up to $10 million in tax-free gains per investment. For Limited Partners in a seed fund, their distributed gains from a single successful company are often below this cap, making their entire return tax-free and juicing net performance.