Sep 16, 2019 · 42m · 20vc
20VC: Haystack's Semil Shah on Whether Founders Are Bypassing Seed Funds in Favour Of Less Dilutive Multi-Stage Funds, How Fund Strategy Changes With Fund Scaling & Why The Hardest Challenge is Price Discipline
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In this episode of The 20VC, host Harry Stebbings speaks with Semil Shah, General Partner at Haystack, to explore how high-caliber founders navigate seed versus multi-stage funds, how Haystack scales its fund mechanics across vintages, and why portfolio time diversity and price discipline are vital for long-term venture success.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 31.1% of the talking time here. How this is scored →
Harry as informed peer 4.4 Guest teaching 4.4 Guest disagreement 1.4 Harry pushing back 2.7
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 38:19 Rejecting the prompt on investment announcements
Semil flatly declines Harry's quick-fire prompt to share a recent investment, explaining a deliberate strategy to keep investments unannounced to protect founders from VC spam.
Hardest push from Harry ▶ 8:50 Harry challenges multi-stage seed investmentsHarry pushes back directly against Semil's thesis, arguing that $3M checks from multi-billion dollar funds are mere optionality bets with insufficient partner time or aligned incentives.
Biggest teaching moment ▶ 18:40 Semil explains portfolio time diversitySemil educates Harry on the concept of time diversity, demonstrating mathematically how three-to-four-year deployment windows protect fund returns against temporary market downturns.
Harry holds his own ▶ 8:50 Harry details fund incentives and ownership mathHarry showcases deep industry mechanics knowledge by breaking down fund allocation percentages and questioning whether giant funds provide real founder support for early checks.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Semil Shah's Path into Venture Capital | 2 | 2 | 0 | 0 | Harry welcomes Semil back to the show for a third time and asks a standard background question regarding his transition into venture capital. Semil shares his personal story of blogging, consulting, and founding Haystack after being encouraged by close friends. | |
| Why Talent Bypasses Seed Funds for Multi-Stage Firms | 6 | 4 | 3 | 6 | Harry challenges Semil's tweet about top founders bypassing seed funds, arguing that small checks from multi-billion dollar funds are mere optionality bets with minimal partner attention. Semil politely counters by explaining how talented alumni mitigate signal risk and leverage operator support, reframing the dynamics of modern seed rounds. | |
| Evaluating High Early-Stage Valuations and Fund Mechanics | 6 | 5 | 2 | 5 | Harry presses Semil on sky-high early-stage valuations and questions whether multi-stage firms have the human capital to maintain relationships over time against multi-stage growth players like Tiger or DST. Semil uses a poker analogy to explain fund math and optionality for multi-billion dollar funds. | |
| Compressed Fundraising Timelines and Time Diversity in Portfolios | 5 | 6 | 1 | 2 | Harry questions compressed deployment cycles, and Semil introduces the concept of time diversity in portfolios, explaining how 3-4 year funds smooth out entry prices during market corrections. Harry acknowledges this perspective on fund management pacing is rarely discussed on the podcast. | |
| Scaling Haystack's Fund Strategy and Reserve Management | 5 | 4 | 1 | 2 | Harry drills into Haystack's growth into a $50M vehicle, questioning check sizes, cap table positioning, and follow-on reserve management. Semil outlines his strategy of maintaining modest cap table targets and relying on lead investors to price and evaluate Series B rounds. | |
| Shifting Investment Allocation from Consumer to Enterprise | 4 | 5 | 1 | 2 | Harry relays a question from Jeremy Liew about Semil's shift from consumer to enterprise investing. Semil breaks down macroeconomic shifts post-2016, specifically rising customer acquisition costs and mobile platform saturation that squeezed consumer startup efficiency. | |
| Quick Fire Round: Insights on Books, LPs, and Stealth Strategy | 3 | 5 | 2 | 2 | During the quick fire round, Harry asks Semil for his latest publicly announced investment, but Semil turns the question on its head by revealing Haystack purposefully refrains from publicizing early investments to protect stealth founders from unwanted VC solicitation. |
Statements from this episode (16)
Shah launched Haystack with initial funds of $1M and $3.2M
“And what happened was, is that I loved doing those initial small funds. They were just very small, one million dollars, 3.2 million dollars.”
Shah: Tech operational experience replaced university degrees as founder talent signals
“The pedigree of what people look for as a signal of talent now has shifted where if you are, you know, it doesn't even matter where you went to high school or college. If you were working for five years on the infrastructure team at Stripe in the early days, o…”
Shah: Top tech alumni founders are bypassing seed funds for multi-stage firms
“This group of people right now, they're voting with their feet, and they're bypassing seed.”
Stebbings: Pre-launch startup valuations hit $25M pre-money in 2019
“I've seen recently twenty-five million pre-launch for the pre, a hundred million pre's on one to two million ARR companies.”
Shah: Seed valuations do not matter to multi-stage mega-funds
“The pricing, when you just have three people and they've got a prototype doesn't really matter right now. So if they want four on 20 or four on 25 or four on 30, it just doesn't matter. We can deal with that later.”
Shah: Sequoia or Lightspeed seed funding does not guarantee follow-on rounds
“It sort of like a false narrative that like, if you take a seed from a Sequoia or you take a seed from a Lightspeed, they're just going to continue to do your next rounds.”
Shah: Multi-stage VCs require 10% seed ownership to justify partner time
“What I do think is that it's tough for one of these larger VC firms to warrant a partner's time and brand experience extension to a seed round unless they own about 10% as an option, because what you're saying then is like, I'm going to hold 10% in pro rata, a…”
Shah: VC fund deployment cycles have compressed from three to two years
“So like the industry norm has moved from three year vintages to two year vintages.”
Shah: Haystack Fund V will deploy $50M over at least three years
“Disclosed fund five a few months ago. We haven't opened it yet. It's going to be a fifty million dollar vehicle. You know, I told everyone, and I hope you can hold me accountable to this, Harry. You know, it'll be at least a three-year fund”
Shah: Deploying funds over 3-4 years levels cost basis during dips
“If you have a three year fund or even a four year fund, You are more statistically likely to have that six to 12 month period fall into the vintage so that your median entry price and your cost basis for buying the shares and the startups that you're buying ca…”
Haystack scaled check sizes from $25K in Fund I to $500K
“Fund one was 25 K checks, Fund two was 50 and a hundred K checks with a couple of 200. Fund three was a hundred to two 50 K checks with a couple of six, four to 600 checks. And then fund four, which we're just closing up has been around 500 K checks, give or t…”
Shah: Seed VCs should outsource Series A and B follow-on decisions
“If your competency is seeded, And then you follow on an A or B. You don't really have the competency as a manager to assess whether that's a good A deal, whether that's a good B deal. So part of what you need to do as a manager is outsource that decision to th…”
Shah: Platform maturity made consumer startups capital inefficient post-2016
“And so my intuition was a platform maturity of the iPhones, of the app store on iOS, of Facebook, of Google, of Snap and Pinterest kind of hit a ceiling where I felt the cost of acquiring these customers in the LTV, according to it, would make the businesses v…”
Shah: LPs must be friendly and value-additive to remain competitive
“If I'm an LP, and I want to be competitive over the next 10 to 20 years, I better be extra nice, have fun with my GPs, and be available to answer questions around fund management, connecting them to new people, giving hard feedback when it's needed, but being …”
Shah: Early venture outcomes are random, making price discipline critical
“When we all invest so early, the outcomes are completely random, they're completely unknown, and so we have to kind of take a cohort basis. And what you have now is especially in the Bay Area, such a free flow of capital and a loosening of norms around how fun…”
Haystack stopped announcing deals to shield founders from downstream VCs
“I decided in fund four, Harry, we don't really announce the investments, and it's an interesting topic. What happened in the first three funds is, I think, partly because we were successful in finding good companies early, and there was a good rate of series A…”