Mar 23, 2020 · 32m · 20vc
20VC: Multi-Stage Funds Investing At Seed Are Option Value Investing, Why The Biggest Enemy For Venture Firms Is Group Think and How Running Companies Changes Your Investment Mentality with Manu Kumar, Founder @ K9 Ventures
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In this episode of The 20 Minute VC, K-Nine Ventures founder Manu Kumar joins Harry Stebbings to discuss the evolution of pre-seed investing, the hidden risks of taking seed capital from multi-stage funds, and how active company building sharpens investment thesis and founder empathy.
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 36.5% of the talking time here. How this is scored →
Harry as informed peer 3.2 Guest teaching 4.0 Guest disagreement 1.5 Harry pushing back 2.5
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 7:41 Rejecting Multi-Stage Option Value
Manu strongly rejects the notion that taking multi-stage money at seed is always positive, warning that founders are treated as mere option value and left stranded if things go wrong.
Hardest push from Harry ▶ 20:05 Sarcastic Pushback on VC GroupthinkHarry playfully pushes back against Manu's assertion that groupthink ruins venture firms, sarcastically claiming VCs are fiercely independent thinkers.
Biggest teaching moment ▶ 9:39 Multi-Stage Funds as Training WheelsManu reframes Harry's understanding of multi-stage seed investing, explaining that large funds often use early-stage checks merely as a safe training wheels environment for new hires.
Harry holds his own ▶ 7:30 Multi-Stage Capital DebateHarry demonstrates strong market awareness by citing Samuel Shah and expressing firm personal conviction on the controversy surrounding multi-stage funds invading seed rounds.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| Interview Welcome and Reconnecting with Manu Kumar | 2 | 3 | 0 | 0 | Harry welcomes Manu back and sets context by recalling that Manu coined the term pre-seed in 2013. Manu explains the macro shift in venture from 2009 to present, noting how seed round sizes inflated from $500k to $2-3M, creating the necessity for a distinct pre-seed tier. | |
| Multi-Stage Funds, Option Value Investing, and Training Wheels | 4 | 5 | 2 | 3 | Harry brings up multi-stage funds invading the seed stage, noting it gets his blood boiling and quoting Samuel Shah. Manu re-educates the premise, explaining multi-stage seed checks are often just option-value bets or training wheels for junior partners, which can backfire on founders. | |
| Fundraising Compressed Timelines and K-Nine's Portfolio Strategy | 4 | 4 | 1 | 2 | Harry asks about compressed fundraising timelines and portfolio concentration, wondering if LPs push back on low diversification. Manu explains his 5-year fund lifecycle and zero-FOMO approach, noting LPs actually prefer higher concentration. | |
| Avoiding Adverse Selection in Pre-Seed Funding | 3 | 4 | 1 | 2 | Harry relays a question from Michael Kim regarding adverse selection when founders skip pre-seed funding. Manu shares his diamond in the rough metaphor to explain how pre-seed investors add value through company-building rather than just picking. | |
| Why Groupthink Is the Biggest Enemy for Venture Firms | 4 | 5 | 3 | 5 | Manu identifies groupthink as the biggest enemy of venture capital firms. Harry offers sarcastic pushback defending VCs as individual thinkers, before Manu explains how operating HiHello reshaped his views on remote work and software stacks. | |
| Quick Fire Round: Insights, Books, and Workona Investment | 2 | 3 | 2 | 3 | During the quick-fire section, Manu declines to pick a single best board member, prompting Harry to tease him about having a career in politics. Manu also highlights Workona as his latest investment. |
Statements from this episode (15)
Kumar: Startup value creation has shifted primarily to private markets
“If you look at the new venture landscape, the value creation has really shifted to private markets. Companies add more value while they are still private than sometimes, and they do even after they've gone public.”
Kumar: Seed rounds grew from $500K in 2009 to $3M by 2020
“At that time, a seed round was 500,000 dollars. Today, a seed round is two to three million dollars, if not more.”
Kumar: Multi-stage seed checks are option value that harms struggling startups
“For a lot of these multi-stage firms, the capital that they put into a company in the early stages is just an option value. And if it's just an option value, then if things don't go well, that company is going to have an incredibly difficult time at raising ca…”
Kumar: Multi-stage firms use seed checks as training wheels for new partners
“In a lot of cases, I feel that some of the multi-stage firms coming in and investing at the seed stage is not a function of a calculated strategy, but more of essentially providing a safe playground and training wheels for some of the new folks who are there.”
Kumar: K9 Ventures operates on a five-year fund cycle
“First my investment period is five years. So I only go out to market with a new fund every five years and not every two to three years.”
Kumar details portfolio counts for K9 Ventures Funds I, II, and III
“Fund one had about 19 portfolio companies. Fund two had 14 portfolio companies, and I'm about a third of the way in fund three, where we have about six investments so far, and I still have several years to go before we'll go out to market for the next fund.”
Kumar: K9 Ventures initial check size is $400K to $600K
“My initial range used to be between 400 to 600 K as an initial investment. I would say I'm probably closer to the higher end of that range today than I was earlier, but I've still tried to keep it very stable and disciplined.”
Kumar: K9 Ventures will not raise valuations to chase competitive deals
“I have absolutely zero fear of missing out, and so if there's a company that is got multiple term sheets or offers even at the pre-seed stage and stuff like, I'm not going to be Chasing that deal and trying to move up in valuation in order to win that deal.”
Kumar: K9 LPs push for concentrated, high-ownership venture portfolios
“My LPs tend to prefer a concentrated portfolio, and so most of my LPs are kind of pushing me in the other direction, which is like, go ahead and take a, take as much ownership as you can in a company, do fewer companies, and if you win with fewer companies, yo…”
Kumar caps K9 Ventures at three to four investments annually
“So if I'm only making three or four new investments in a year, it's an incredibly tight filter to begin with.”
Kumar: Solo founder experience is critical for solo GPs trusting their gut
“And I think that experience of having been a solo founder is critical for me today being a solo GP, because I have to be comfortable in making a judgment call, effectively trusting my gut in a lot of cases.”
Kumar: Groupthink and consensus are the biggest enemies for venture firms
“I think the biggest enemy for venture firms is actually groupthink, and that kind of almost goes back to the solo GP versus a partnership type of a model. There's a lot of benefits to having partners and people Questioning and serving as a, as checks and balan…”
Kumar: Early-stage startups should embrace remote teams
“And so now I, when I'm talking to companies that I would invest in, I'm totally comfortable with them having remote teams. And in fact, I advocate that they should have remote teams.”