In many ways, today's seed-stage tech investing is a return to traditional early stage venture capital in which investing in people and ideas, primarily pre-product, was standard practice. The big difference today is that the cost of starting a tech company has gone down significantly. For a variety of reasons, hypotheses can be tested with a few hundred thousand dollars rather than millions, and early customer traction can be demonstrated quickly. In recognition of their early involvement and willingness to take on high risk, investors can get in at much lower valuations and have the opportunity to obtain significant ownership.
While the renaissance of this investment sector was at first dominated by angel investors, micro venture capitalists (seed-stage specialists) have emerged during the last decade or so. These investors distinguish themselves from "super angels," by building firms that offer distinct services to assist entrepreneurs at the earliest stages of their journey. Such platforms of service, and the communities that many foster, serve to both add value and entice an entrepreneur to be part of the portfolio. In other words, it's a win-win-win — it improves deal flow for the venture capitalist, provides value beyond just capital to the entrepreneur, and enhances the overall portfolio.
As a consequence of these firms' success, institutional money directed toward the sector is growing. According to First Republic Bank, an organization that tracks this segment closely, institutional investment in this sector more than doubled during the past five years with the $2.1 billion invested in 89 funds in 2012 being dwarfed by $4.4 billion invested in 136 funds in 2016.