Founders and investors aren’t prosecuting their opportunities in a sequential fashion. They are constantly optimizing across multiple dimensions at once. 

So, how should one think about what to focus on, what milestones to target, and the purpose of a pre-seed or seed round? In my view, there are really four questions that investors and founders are thinking about:

  1. Is this something people want?

  2. How hard is this going to be to sell (or get traction)?

  3. Can this team do it?

  4. Does it matter?

To raise a seed, you probably need reasonably strong early data on all four of these. In this environment, most investors expect some demonstrable evidence of customer traction. Most products can be built with a high enough fidelity to get some customers engaged and paying. And that gives you tangible evidence that the team is capable, that selling the product isn’t going to be impossible or flukey, and that the market thinks the thing matters.

If you don’t have decent data on all four of these, then you are in pre-seed territory. Pre-seeds usually have one of these four very strongly answered, but the rest are hypotheses or hunches. Maybe the team is great but the idea is not fully formed. Or the team is unproven but they’ve built something that seems to be working. Or maybe the thesis is so compelling that folks will be willing to put in some money just to flip a few cards.

Series As typically happen because there is strong data an all four of these questions, but one really stands out. Usually, it’s traction, but sometimes it’s the uniqueness of the team, the quality of the product, or the way the thesis is unfolding in the market. 

In this market in particular, #4 is very top of mind. There is so much uncertainty about how the world is going to unfold as AI permeates more and more of the market. It’s unclear what software development will look like in 5 years, and as a second order effect, it’s unclear how software-based businesses will be built and how the winners will emerge. Answering “does this matter?” used to be about proving market potential, and that is still much of the challenge. But increasingly, “does this matter?” requires painting a vision of the future of your industry where your company will continue to win after many of these second order effects take hold. Of course, if you have lots of traction, investors are more willing to agree with whatever vision of the future you paint. But I think we are going to see an equal number of companies that get to scale and then flame out or get leapfrogged as the markets evolve. Having true depth of vision around your industry, customers, and technology is as important now as it’s ever been.