Why Your Pre-Seed SaaS Startup Probably Shouldn’t Pursue Top-Tier Multistage VCs (And Who You Should Target Instead)

For pre-seed SaaS CEOs planning their seed round in 2025-2026

Every pre-seed founder dreams of landing Sequoia, Andreessen Horowitz, or Benchmark for their seed round. The brand value, the network, the deep pockets for follow-on rounds—it’s the venture capital equivalent of getting into Harvard. But here’s the uncomfortable truth most won’t tell you: if you’re a typical pre-seed SaaS company, pursuing these firms might be the worst strategic decision you can make.

Let me explain why, using data that might surprise you.

The Seed Investment Paradox: Highest Returns, Highest Competition

Recent data from PitchBook’s Q4 2025 Analyst Note reveals something fascinating: seed-stage investments generate the highest annualized returns of any venture series at 35.8%, compared to 25.0% for Series A, 18.3% for Series B, and declining returns in later stages. This makes perfect sense—seed investors enter at the lowest valuations and benefit from every subsequent valuation increase through Series A, B, C, and beyond.

This exceptional return profile hasn’t gone unnoticed. Over the past decade, large multistage venture firms have fundamentally transformed the seed landscape. These firms, traditionally focused on Series A and later rounds, now deploy significant capital at the seed stage. The result? Median seed deal sizes have grown 343% over the past ten years, with over 100 seed deals annually now closing at $50 million+ valuations.

For founders, this influx of large capital seems like an embarrassment of riches. More money, higher valuations, prestigious brands on your cap table—what’s not to love?

Everything, if you’re not the right fit.

The New Seed Stage Power Players

Before we go further, let’s identify who we’re talking about. The large multistage funds most active at seed stage include:

1. Index Ventures

Index perfectly exemplifies the large multistage seed strategy. They led Figma’s seed round in 2012, investing $1.8 million initially and a total of $86.5 million over 12 years. Rather than accepting dilution through subsequent rounds, Index continued following on aggressively, ultimately holding 16.1% at Figma’s IPO—increasing their ownership over time. When Figma went public in July 2025, Index’s stake swelled to over $7 billion, representing a nearly 90x return. This wasn’t luck; it was strategy. Index brings $2+ billion in assets under management and can write checks from $1 million at seed to $100+ million in later rounds.

2. Sequoia Capital

Sequoia has formalized their seed strategy through Sequoia Arc, investing $100K-$1M at the earliest stages with the explicit goal of building long-term relationships. With over $56 billion in AUM across multiple funds, Sequoia can support companies from inception through IPO, writing follow-on checks worth hundreds of millions. They’re not investing at seed for the seed returns—they’re buying option value on leading your Series A, B, and C.

3. Andreessen Horowitz (a16z)

a16z maintains dedicated seed-stage partners and has invested in hundreds of seed deals over the past decade. With $46+ billion in AUM and extensive platform resources (talent, marketing, regulatory, technical), they offer what appears to be the complete package. Their seed checks typically range from $500K to $10M, with the ability to deploy $50M+ in follow-on rounds.

These firms represent the pinnacle of venture capital. They have the resources, networks, and track records that make founders salivate. But here’s where the contrarian analysis begins.

What Large Multistage Funds Actually Look for at Seed

Understanding what these firms seek is crucial for determining whether you should pursue them. Based on market dynamics and investment patterns revealed in the PitchBook data, large multistage funds have specific, demanding criteria:

1. Massive Total Addressable Markets ($10B+)

Large funds need investments capable of returning significant portions of multi-billion dollar funds. A $2 billion fund needs portfolio companies that can achieve $5-10 billion outcomes. This requires enormous TAMs—typically $10 billion or larger with clear paths to capturing significant market share.

For SaaS: They’re looking at horizontal SaaS platforms serving massive enterprises, vertical SaaS in trillion-dollar industries, or infrastructure software that every company will eventually need.

2. Venture-Scale Capital Requirements

The PitchBook data shows large funds want companies that will require—and can productively deploy—significant capital:

• Seed: $5-10M+
• Series A: $14M (median, up from $3.1M in 2015)
• Series B: $32M+ (median, breaking records in 2025)
• Series C+: $50M-200M+

They’re explicitly not interested in capital-efficient businesses. They need companies where aggressive capital deployment creates competitive moats and accelerates market dominance.

3. Category-Defining Potential

These firms seek companies that will create or dominate new categories. Second or third movers in established markets rarely interest them at seed. They want the Salesforce, not another CRM; the Stripe, not another payment processor.

4. Team Pedigree and Ambition

Large multistage funds typically invest in:

• Serial entrepreneurs with exits
• Former executives from relevant unicorns/public companies
• Technical founders from FAANG with deep domain expertise
• Teams with complementary skills capable of scaling to thousands of employees

Importantly, they need founders committed to building for 10+ years. According to PitchBook, the median time to IPO for companies valued at $500M+ has reached 11.5 years. These firms need leaders willing to forego acquisition offers and build enduring companies.

5. Exceptional Early Metrics

Even at seed, large multistage funds expect traction suggesting imminent Series A readiness:

• For product-led SaaS: Strong user growth, activation rates, conversion metrics
• For enterprise SaaS: Pilot customers, LOIs, or early revenue from marquee brands
• For infrastructure: Developer adoption, GitHub stars, community traction
• For vertical SaaS: Clear unit economics and repeatable sales motion

They’re essentially “buying” Series A deals at seed prices—which means seed-stage companies need near-Series A traction.

6. Strategic Follow-On Opportunities

Remember the Index/Figma example: the seed investment was the beginning of a multi-round relationship. Large funds invest at seed to secure:

• Pro-rata rights in subsequent rounds
• Information rights to track company progress
• Relationship with founders before competition intensifies
• Ability to lead or significantly participate in Series A/B/C

The seed investment doesn’t need to generate returns independently. It’s option value on leading a $20M Series A and $50M Series B.

7. Network Effects and Compounding Moats

These firms seek business models where advantages compound:

• Network effects that strengthen with scale
• Data moats that improve products algorithmically
• Platform dynamics with increasing switching costs
• Viral growth loops that reduce CAC over time

Linear growth businesses, no matter how profitable, rarely interest them.

The Contrarian Reality: Most Pre-Seed SaaS Companies Don’t Fit

Now for the uncomfortable truth. If you’re a typical pre-seed SaaS company, you probably cannot meet these expectations—and that’s perfectly fine. Let’s examine why:

1. Market Size Mismatch

Most SaaS companies serve specific markets:

• Vertical SaaS for dentists, law firms, or restaurants ($500M-$5B TAMs)
• Regional solutions for non-US markets
• SMB-focused tools where ACVs limit scale
• Workflow solutions for specific departments or functions

These can be exceptional businesses generating $50-200M in revenue and $100-500M exits. But they’ll never return a $2 billion fund. For large multistage funds, these are uninteresting regardless of execution quality.

2. Capital Efficiency is Your Strength, Their Weakness

Many great SaaS businesses are capital-efficient:

• Product-led growth with viral loops
• Strong unit economics enabling sustainable scaling
• Founder-led sales working effectively
• Total capital needs of $5-15M through profitability

This capital efficiency is enormously valuable—it means less dilution, more founder control, and sustainable growth. But for large multistage funds, capital efficiency is a bug, not a feature. They can’t deploy $200M+ into your company over time, which means they can’t generate the returns they need.

3. The “Quick” Exit Trap

Let’s say you build an exceptional vertical SaaS business. After 5 years, you’re at $25M ARR growing 60% annually with strong unit economics. A strategic acquirer offers $250M—10x revenue, 30x+ returns for your seed investors, life-changing wealth for your team.

For a small seed fund, this is a home run. For a large multistage fund that led your $15M Series A at a $75M valuation? It’s a 3.3x return—mediocre. They’ll pressure you to turn down the acquisition and “keep building.” Their incentives don’t align with yours.

4. Realistic Traction Levels

At pre-seed, most SaaS companies have:

• An MVP or early product
• 5-50 users/customers
• $0-$500K ARR (if any revenue)
• Product-market fit signals, not proof
• A hypothesis about scaling, not a playbook

This is completely normal and appropriate for pre-seed. But it’s insufficient for large multistage funds who expect near-Series A traction even at seed stage.

5. The Competition Factor

Even if you meet every criterion perfectly, you’re competing against 50+ other exceptional companies for a handful of seed spots at each firm. These firms make 10-30 seed investments annually from thousands of opportunities. The odds are extraordinarily low.

Should You Disqualify Large Multistage Funds?

Here’s where the analysis gets nuanced. The answer isn’t “never pursue large multistage funds.” It’s “be honest about whether you’re the right fit, and understand the tradeoffs.”

When You SHOULD Pursue Them:

Pursue large multistage funds if you can honestly answer “yes” to most of these:

1. Your TAM is genuinely $10B+ with clear paths to capturing 10-20%
2. You have exceptional founder pedigree (previous exits, FAANG senior roles, etc.)
3. You’ve already achieved metrics suggesting Series A readiness
4. Your business model requires and can productively deploy $100M+ in capital
5. You’re building something category-defining, not incrementally better
6. You’re committed to building for 10+ years regardless of acquisition offers
7. You need the specific resources large multistage funds provide (executive recruiting, regulatory navigation, global expansion support)
8. You’re willing to accept aggressive growth expectations and potential misalignment on exit timing

If you answered “yes” to 6-8 of these, go for it. You’re exactly what they’re looking for.

When You SHOULDN’T Pursue Them:

Disqualify or deprioritize large multistage funds if:

1. Your market is $1-5B (perfectly viable, just not for them)
2. You can reach profitability with $10M or less in total capital
3. You’re a first-time founder without extraordinary traction yet
4. Your business is “better” rather than “different”
5. You want optionality for earlier exits ($100-300M range)
6. You value control and want to preserve ownership
7. You’d benefit more from hands-on operational support than platform resources

This isn’t about them rejecting you—it’s about you making a strategic choice based on alignment.

Who Should Pre-Seed SaaS CEOs Actually Target?

If large multistage funds aren’t the right fit, where should you focus your energy? The good news: there are numerous investors perfectly suited for your stage and trajectory.

1. Specialized Seed Funds ($50M-$150M Fund Size)

Examples: First Round Capital, Uncork Capital, Hustle Fund, Precursor Ventures

Why they’re ideal:

• Fund economics work with $50-200M exits, not just unicorns
• You’ll be a portfolio-defining investment, not one of 50 seeds
• Partners often have operating backgrounds and provide hands-on support
• More flexible on follow-on capital expectations
• Genuinely understand pre-seed to seed journey
• Can lead your seed round with conviction

Target criteria: $250M-$5B TAMs, $0-$1M ARR, strong team and product hypothesis

2. Sector-Specific Investors

Examples:

• B2B SaaS: Point Nine Capital, Heavybit (dev tools), Bowery Capital
• Vertical SaaS: Inovia Capital, Telescope Partners
• Fintech: Flourish Ventures, Nyca Partners
• Healthcare: Healthtech Capital, Optum Ventures

Why they’re ideal:

• Deep domain expertise in your specific market
• Relevant networks of customers, partners, and talent
• Understanding of sector-specific metrics and benchmarks
• Often more patient with sector-typical growth rates
• Can provide strategic guidance on regulatory, go-to-market, etc.

Target criteria: Operating in their sector focus, clear domain expertise on team

3. Geographic/Regional Focused Funds

Examples: SaaStr Fund (West Coast), Boldstart Ventures (NYC), Afore Capital (LatAm), Point72 Ventures

Why they’re ideal:

• Strong local networks for recruiting, customers, and follow-on funding
• Understanding of regional market dynamics
• Often underpriced compared to Bay Area deals
• More accessible and willing to take meetings
• Can provide concentrated support in your geography

Target criteria: Based in their region or serving their regional markets

4. Strategic Angels and Micro-VCs

Examples: Individual angels from relevant backgrounds, emerging managers with $10-30M funds

Why they’re ideal:

• Highly responsive and hands-on
• Often more flexible terms
• Can move quickly without committee approval
• Bring specific operational expertise
• Great for filling out rounds led by others
• Genuinely invested in your success (you’re one of 10-20 investments, not one of 200)

Target criteria: Relevant background, genuine desire to help, reasonable check sizes ($25K-$250K)

5. “Emerging” Multistage Funds ($300M-$800M)

Examples: Craft Ventures, Operator Partners, Unusual Ventures

Why they’re ideal:

• Middle ground between seed specialists and mega-funds
• Can lead seed AND Series A/B, reducing financing risk
• More flexible on market size and exit ranges
• Partners often have recent operating experience
• Better founder terms and more reasonable ownership expectations

Target criteria: Strong but not exceptional traction, $1-10B TAMs, need for follow-on capital

Real-World Case Studies: When Strategy Matters More Than Brand

The Chime Story: Rejected by 100 VCs, Saved by One Seed Investor

Chime’s 2025 IPO story perfectly illustrates why the right investor matters more than the prestigious one. In 2016, when Chime desperately needed cash, over 100 VCs—including presumably some large multistage funds—said no.

One seed investor said yes: Lauren Kolodny, then a partner at Aspect Ventures (now co-founder of Acrew Capital). Kolodny led Chime’s $9 million extension at 26 cents per share. “She really took a bet on Chris and I, and believed in our passion and zeal,” co-founder Ryan King recalls.

When Chime went public in June 2025, it raised $864 million at a $27/share IPO price, opening at $42 and closing its first day with a market cap around $12 billion. Kolodny’s conviction—and her willingness to invest when no one else would—created extraordinary returns while enabling Chime to survive and eventually thrive.

The irony? By the time Chime was a clear winner, prestigious VCs like Iconiq, DST Global, and Sequoia Capital chased the company in later rounds. But the outsized returns went to the seed investor who believed early.

The Figma Lesson: Right Investor Plus Right Company

While Index Ventures’ Figma investment worked spectacularly, it’s worth noting what made it work:

1. Category-defining vision: Figma wasn’t just better design software—it was reimagining collaborative design
2. Exceptional founder: Dylan Field impressed Index partner Danny Rimer as an 18-year-old intern with unique talent
3. Patient capital: Index followed on consistently for 12 years, investing $86.5M total
4. Platform ambitions: Figma targeted every designer globally, not a niche market

For most pre-seed SaaS companies, these factors don’t align. And that’s okay—you don’t need a $56 billion outcome (Figma’s market cap at IPO) to build a phenomenal business.

How to Make the Right Choice: A Framework

Use this decision framework when evaluating seed investors:

Step 1: Define Your Realistic Trajectory

Be honest:

• What’s your realistic TAM and capturable market?
• How much capital will you realistically need?
• What’s your likely exit range and timeline?
• How important is control vs. growth-at-all-costs?

Step 2: Assess Founder-Investor Alignment

For each potential investor, evaluate:

• Return expectations: Do their fund economics work with your likely outcome?
• Timeline alignment: Is their fund lifecycle compatible with your exit timeline?
• Ownership philosophy: Do they accept dilution or continuously follow on?
• Value-add: What do they actually provide beyond capital?

Step 3: Prioritize Access and Efficiency

Harsh reality: You have limited time and mental energy during fundraising.

Focus 80% of effort on:

• Investors where you have warm intros
• Funds that have invested in similar companies at similar stages
• Investors whose fund size suggests your outcome would be meaningful
• People who respond promptly and show genuine interest

Spend only 20% on:

• Dream/reach investors (including large multistage funds)
• Cold outreach
• Investors outside their typical pattern

Step 4: Build a Diversified Syndicate

The ideal seed round often includes:

• One lead investor (specialized seed fund or sector-focused) providing 40-60% of the round
• 2-3 strong angels with relevant expertise providing 20-30%
• 1-2 other funds (geographic, micro-VCs) providing 20-30%
• Maybe one larger fund (if they genuinely want in) providing 10-20%

This gives you:

• Capital to execute for 18-24 months
• Diverse perspectives and networks
• Follow-on optionality without over-dependence
• Validation from multiple parties

The Data Tells the Story

Let’s return to the PitchBook data that started this discussion. While seed investments generate the highest returns at 35.8% annualized, these returns come with context:

• Almost 40% of seed-backed companies fail outright
• Median ownership stakes have fallen to 24.8% in Q3 2025
• Average US seed fund size remains around $26M
• Holding a 10% stake through Series B now costs about $6.5 million

For large multistage funds with $2B+ in AUM, these economics work only for potential unicorns. For specialized seed funds with $50-150M in AUM, a $200M exit is meaningful. For angels, a $50M exit can return their fund.

Your outcome range determines your ideal investor profile.

The Bottom Line: Play Your Own Game

The venture capital industry has trained founders to optimize for brand-name investors regardless of fit. But here’s what matters more than the logo on your deck:

1. Capital that enables execution for 18-24 months to clear Series A milestones
2. Investors who want you to succeed on your timeline and trajectory
3. Alignment on outcomes that work for everyone at the table
4. Genuine support when inevitable challenges arise
5. Optionality to choose your path as the business evolves

For most pre-seed SaaS companies, specialized seed funds, sector-focused investors, and engaged angels provide these benefits better than large multistage funds.

Yes, seed investments generate 35.8% annualized returns—the highest of any stage. Yes, large multistage funds are active and offer compelling benefits. But these facts don’t mean they’re right for you.

The contrarian insight: Actively disqualifying investors wrong for your trajectory is as important as pursuing investors right for it.

Spend your limited time and energy on investors who genuinely fit. Build a company that creates value on a timeline that works for you. When you’re crushing it at $50M ARR with strong unit economics and optionality, you’ll be glad you optimized for the right partners rather than the most prestigious ones.

And ironically, if you truly build something exceptional, those large multistage funds will come to you at Series A anyway—when you have leverage and they’re competing to lead your round.

Action Items for Pre-Seed SaaS CEOs

1. Honestly assess your TAM, capital needs, and likely trajectory against the criteria outlined above
2. Research 15-20 specialized seed funds and sector investors that match your profile
3. Build relationships with relevant angels in your space before you need to fundraise
4. Create a target investor list weighted 80% toward realistic fits, not aspirational brands
5. Prepare materials that speak to your realistic path, not a fantasy unicorn narrative
6. Focus on alignment, not prestige, in every investor conversation
7. Remember the data: The right seed investor at the right time matters more than the biggest name

The right seed investors will accelerate your journey. The wrong ones—no matter how prestigious—will create friction that compounds over years. Choose wisely.

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About the Data: This analysis draws from PitchBook’s Q4 2025 Analyst Note “Seed Under Pressure”, which provides comprehensive data on US venture capital trends, including annualized returns by series, median deal values, ownership stakes, time to exit, and fund performance metrics through September 30, 2025.

Further Reading:

• Index Ventures’ Figma Investment Case Study
• Chime’s IPO Journey and Early Investors
• Sequoia Capital’s Seed Strategy

First Round Capital’s Approach to Seed Investing