These days, the technical barrier to creating a new software product is low. As a result, the bar for building a product that has Product Market Fit (PMF) and traction is lower than before.
Unfortunately, because the bar for creating something is very low, there is a higher expectation of what can be achieved with the funding raised.
However, the issue is that it’s hard to predict from day 0 which teams will be able to build a product, hit PMF, and gain traction quickly with the capital raised. Even founders don’t know this.
With pre-seed raises of $500k to $1.5m, I find that most companies struggle to build a product with PMF, hire a team AND drive meaningful traction. The tiny percentage of pre-seed companies that do break out with PMF and great traction will typically raise a Series A (not seed). The ones that don’t hit PMF or traction will likely pivot, shut down, raise a seed, or end up raising bridge rounds, not exactly confidence-inspiring to subsequent investors, but also not necessarily a bad thing - anything to keep the runway going.
Because graduation rates from seed to A are now lower and the time it takes from seed to A is longer, in most cases, I’d prefer if companies raise a little bit more (>$2m+) in their first rounds to give themselves sufficient runway and multiple shots on goal to hit the next round milestones. Even better (for me) if they raise at pre-seed valuations.