Trends Watch: Seed Stage Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks with Greg Dalli, Co-Founder, Centauri Capital.  

What is your outlook for seed stage investing? 

We believe that later-stage funds will continue to migrate earlier and earlier in the lifecycle of companies. There is too much capital available in later stages, and not enough companies to prevent bidding wars and valuation inflation, which degrades returns. Early-stage investing is about evaluating people, while later-stage investing is about evaluating businesses. These funds will need to bring on a very different type of person to excel in the early-stage arena. We believe that it is less likely that these funds shift to hiring a different type of investor and instead focus on making small investments in a ton of seed-stage startups to get an inside glimpse into how the businesses are operating. We believe that they will use a spray-and-pray approach to seed-stage investing to build relationships early and get first access to future investment rounds. 

Where do you see the greatest opportunities and why? 

Our investment thesis first starts with where we see the world going. We see a future where the wealth gap will continue to increase, resulting in a minority group who have much more disposable income, and a majority group who will be much more conscious about how their money is spent. To address the needs of the minority group, we see a huge opportunity in companies who can provide high quality and exclusive experiences, services, and products to those looking to express identity through lifestyle. For the majority, we see huge opportunities in companies solving problems that people with less disposable income will be willing to pay to have solved. Specifically, we see opportunity in companies focused on pets, children, loneliness, and financial independence.  

What are the greatest challenges you face and why? 

The greatest challenge is understanding what aspects of society will be quickly impacted by AI versus what aspects will take some time for AI disruption. There are many companies founded today that will be made obsolete by an AI solution in a year or two. Understanding what types of businesses have longevity is critical at this stage. As seed stage investors, we are hoping for exits six to ten years in the future. So, you need to have strong conviction in the role AI will play in society over the next decade. 

What keeps you up at night? 

What keeps me up at night is the current stage of capitalism that we are living in. Ideally, the role of government in a capitalist society is to create a level playing field for companies to compete, and a safe environment for consumers to experience the fruits of competition. In this world, innovation is the primary currency to compete. The issue is that as companies get bigger and bigger, it becomes harder and harder for them to innovate. When a company experiences dramatic reductions in innovation with constant demands for growth, government becomes a tool to stifle competition and protect companies with the resources to shape government. If a new innovation threatens a large, non-innovative company, they face a choice where it may cost $500 million to develop that innovation themselves, $300 million to acquire the innovator, or $10 million to convince politicians to make the new innovation illegal. This is not a good environment for innovation, which is the purpose of VC.  

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.