The luxury of oversubscribed seed rounds for entrepreneurs and investors

The last six startups that we’ve backed, namely Roadster, Mavrx, ValetAnywhere, Arthena, and two startups in stealth mode are all seed investments in the US.

The primary difference between our investments in Turkey and those in the US is that we’re generally the lead investor in our Turkish investments while we take a follower role in our US investments. This is reflected in our investment sizes in each market, which range between $250K and $2M in Turkey and between $100K and $250K in the US. 

The first reason behind our different approach to the geographies we’re active in is because we’re based in Turkey. This makes us better positioned to work with and add value to our Turkish startups than those in the US where we take a more hands off approach.

However, another important reason why our investments in the US are smaller than those in Turkey is because of the availability of capital in each market. In five of these six US investments, the seed round was oversubscribed. We therefore had to adjust our ideal investment amount downwards in order to accommodate the other investors participating in the same round.

This is a nice problem to have for seed stage investors like ourselves. While later stage investors may want to complete as much of a round as possible themselves once they’ve identified a startup with steady growth and a scalable business model, the absence of these characteristics in seed stage investments justifies more risk sharing among investors.

Oversubscribed rounds are also a nice problem to have for entrepreneurs. Their first advantage is that they allow entrepreneurs to choose the investors who they would like to work with based on factors like how much value add the investor will provide, the investor’s brand reputation, and their capacity to perform larger follow on investments.

Equally important, oversubscribed rounds also allow entrepreneurs to raise more capital at better terms. While more capital isn’t always better as it can lead to excess spending, when properly managed at the seed stage, it gives entrepreneurs more runway to achieve the product-market fit necessary for them to continue to grow their business either organically or by raising their next round at better terms.

The natural consequence of the lower amount of capital available for seed stage investments in Turkey gives $100M+ funds like Earlybird, where we’re an investor, and 3TS an important advantage. Even in the absence of other investors, they have the internal financial firepower to continue to support successful startups across the multiple rounds that are often necessary for their success.

On the other hand, oversubscribed rounds in the US are a luxury for both entrepreneurs and investors. As active seed stage investors in the US, we’re very fortunate to be able to position ourselves on the right side of this market dynamic.