Small VCs, Squeezed at Seed, Now Court Founders Pre-Company

By Olivia Hart, Business Bearings

Seed rounds are no longer the entry point. According to PitchBook, smaller venture capital firms—locked out of competitive seed deals—are now courting would-be founders who have not yet founded a single company.

The shift is a response to pressure, not a preference. In today's seed market, mega-funds and established multistage investors write large checks into companies at earlier moments, leaving sub-scale funds with fewer viable slots. PitchBook's reporting frames the result plainly: if a small fund cannot win the deal, it will try to create the founder instead.

What is actually happening?

The tactic targets individuals rather than entities. Instead of evaluating a startup's metrics, these investors evaluate a person's potential, then back that person before any incorporation, product, or revenue exists.

That inverts the traditional sequence of venture capital:

• Traditional model: founder incorporates, builds, raises a seed round.
• New model: investor selects the founder first, then supports company formation.

PitchBook's headline describes the population precisely: founders "who haven't founded anything yet." No valuation, fund size, or deal volume figures accompanied the report's initial distribution, and that absence matters. Without data on how many such bets exist, the trend's scale remains unmeasured.

Why are small funds being squeezed?

The squeeze at seed has been building for several years. Larger funds have moved downstream, writing seed checks at sizes smaller funds cannot match. A seed round that once signaled an untested company now often carries institutional-scale capital and institutional-scale valuations.

For a small fund, the arithmetic is unforgiving. Winning an allocation in a hot seed deal requires either a relationship advantage or a check size the fund cannot sustain. PitchBook's reporting suggests some have concluded that the cheapest remaining edge is finding founders before anyone else knows they are founders.

The promise, presumably, is first-call rights on the next company. The caveat: pre-founder investing is the least proven segment of an already speculative asset class. Most venture returns already come from a minority of deals; backing people without companies narrows the signal further.

What could go right—and what is not said?

The strategy has an internal logic. If access to seed deals is the bottleneck, moving one stage earlier buys access at a discount. Incubation-style and pre-company programs have precedent among larger firms, and talent investing has circulated in venture circles for years.

What PitchBook's report does not yet quantify is the outcome. There are no stated figures on check sizes, on how many small funds have adopted the approach, or on any returns from the cohort. Until those numbers exist, the trend is a sourcing strategy on trial, not a proven category.

The competitive risk is also real. If pre-founder backing becomes common, its advantage erodes—the same dynamic that squeezed these funds at seed would reappear one stage earlier, just with fewer data points per decision.

The takeaway

Small funds are betting that the scarcest asset in venture is no longer the startup but the founder who has not started yet; whether that bet pays off is a question no one can currently answer with numbers.

This article is based on PitchBook's reporting, "Squeezed at seed, smaller VCs are courting founders who haven't founded anything yet."