Overhyped AI, macro challenges, and more from Eniac’s Q2 Seed Sentiment Survey

Eniac Ventures
6 min readJun 12, 2023

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Photo by Towfiqu barbhuiya on Unsplash

by Dan Jaeck and Anthony Ha

What’s next for seed deals?

While seed firms like Eniac are part of the larger VC ecosystem, we also represent a unique asset class that isn’t fully captured by reports and data that focus on the industry as a whole. That’s why we’re launching this Seed Sentiment Survey, which we plan to conduct quarterly. By reaching out to our smartest colleagues and competitors at seed and early stage firms, we hope to take a snapshot of what seed investors are thinking and where they’re making their bets.

For this first survey, we heard back from 60 investors, which we believe represents a significant portion of the (U.S.) seed ecosystem. Our questions covered everything from hot sectors (the answer won’t surprise you), the macro funding market, and valuations.

Here’s what stood out to us in the results, along with select quotes from participants (all quotes are anonymous unless stated otherwise):

AI is the hottest sector (by far), but also the most overhyped (by far). When asked what the hottest sector was in Q1, an overwhelming majority (82%) of respondents said AI. Although this is unsurprising, it is shocking how fast the breakthroughs of foundational models (most notably OpenAI) have created a massive pack of early stage AI companies building on-top of open source infrastructure. Separately, we also asked what the hottest early stage deals were this quarter, and AI was the most common thread amongst these companies. Langchain got by far and away the most mentions, followed by other AI companies like Suno and Seek.

All that being said, a much smaller portion of respondents (45%) said AI was their top sector of focus in Q1, which is further emphasized by 63% of respondents saying AI is the most overhyped sector in VC. Anecdotally, this could be partially attributed to the lessons learned from the rapid rise and fall of capital deployed into crypto in 2021/2022. To that point, crypto is the most out of favor sector this quarter (as chosen by 37% of respondents), followed by consumer (20%) and CPG (17%), as VC-backed winners in these categories continue to struggle in public markets.

AI maxis sound like crypto maxis in 2020. AI will change lots, but it also won’t change everything. Chill. — Aubrie Pagano, Alpaca VC

While everyone is running after genAI, there are opportunities (and likely much better deals) in more ‘traditional’ sectors that have momentarily fallen out of favor.

90% of AI is horseshit but there is some incredible stuff in the noise.

Early stage investors expect the macro market to continue to worsen in 2023. Tech valuations and deal velocity have already experienced macro headwinds year-to-date and respondents of the survey expect this to persist; in fact, 77% expect the macro environment to worsen or meaningfully worsen in 2023. Expect year-to-date seed deal velocity (down 53% YoY in Q1 per PitchBook data) to continue as 65% of respondents intend to inject the same or less capital into new companies in Q2 2023 vs. Q1. Funding for early stage companies after the seed is likely to remain tepid, as 47% of investors expect Series A conversion to happen at a similar pace to 1Q23 — despite the volume of Series A deals in that quarter already being down 48% YoY, per PitchBook.

This will be a great time to deploy early stage capital; crisis vintages have historically created outsized outcomes for everyone

Seed valuation resets have lagged the overall market. Per PitchBook, seed valuations only decreased 4% YoY, which differs significantly from Series A and B (down 42%/49%, respectively).

Moreover, there’s an inconsistency with what our respondents believe a pre-product or seed deal should be priced and what is happening in the market. For instance, on average, our respondents believe a pre-product deal should be priced at ~$10M post-money, while a company with an MVP with $100K ARR should be priced at ~$14M post. This is in contrast to PitchBook data, where the average seed deal in 1Q23 was greater than a $20M post-money valuation.

Although we are comparing previous quarters to future quarters, this wide discrepancy suggests there could be a bigger correction to come. At the same time, through our conversations with early stage investors (separate from this survey), we believe there may be a flight to quality bias which is propping up valuations (e.g., lower volume of seed deals means a greater percentage are higher quality deals, driving up valuation).

Despite the broad repricing across the financial sector, pricing in the seed market still hasn’t adjusted

Prices seem to be coming down for series A and seed

yc co’s felt overvalued and were all in the 15–20 range. Gen AI focused ones at the top of that 20+ post.

And here’s a detailed breakdown of the responses, which were submitted between April 4 and May 4, 2023:

What is your current fund size?

  • Less than $25 million: 4
  • $25 million to $50 million: 2
  • $50 million to $100 million: 15
  • $100 million to $200 million: 20
  • More than $200 million: 18

At what stage does your fund invest?

  • Pre-seed: 5
  • Both seed and pre-seed: 24
  • Seed: 15
  • Early stage (including A): 14
  • Multi-stage: 2

What is the industry’s hottest sector this quarter?

  • AI: 48
  • Climate: 4
  • Digital health: 2
  • Fintech: 1
  • Infrastructure: 1
  • Insuretech: 1
  • Logistics/supply chain: 1

What is the industry’s most out-of-favor sector this quarter?

  • Crypto: 22
  • Consumer: 12
  • CPG: 10
  • Fintech: 5
  • Insuretech: 3
  • Biotech: 1
  • Deep tech: 1
  • Digital health: 1
  • Ecommerce enablement: 1
  • Marketplaces: 1
  • Martech: 1
  • Robotics: 1

What sector is your firm most focused on this quarter?

  • AI: 26
  • Climate: 8
  • Fintech: 5
  • Digital health: 4
  • Vertical SaaS: 4
  • Dev tooling: 2
  • Consumer: 1
  • Crypto: 1
  • Cybersecurity: 1
  • Ecommerce enablement: 2
  • Hard tech: 1
  • Infrastructure: 1
  • Marketplaces: 1

Are there any sectors you personally think are currently overrated/overhyped?

  • AI: 35
  • Climate: 6
  • Crypto: 3
  • Dev tooling: 3
  • Vertical SaaS: 3
  • Consumer: 2
  • American dynamism: 1
  • Ecommerce enablement: 1
  • Martech: 1
  • Robotics: 1

What post-money valuation do you expect on average for a pre-product deal this quarter?

  • $5M: 2
  • $6M: 2
  • $7M: 4
  • $8M: 9
  • $9M: 2
  • $10M: 16
  • $11M: 2
  • $12M: 10
  • $13M: 2
  • $14M: 1
  • $15M: 4
  • $20M: 1

What post-money valuation would you expect on average for a deal with an MVP & $100K ARR this quarter?

  • $8M: 2
  • $10M: 9
  • $11M: 2
  • $12M: 11
  • $13M: 1
  • $14M: 3
  • $15M: 13
  • $16M: 2
  • $17M: 1
  • $18M: 4
  • $20M: 7
  • $25M+: 2

How much capital do you intend to inject into net new companies this quarter?

  • Less than last quarter: 4
  • Same as last quarter: 35
  • More than last quarter: 21

Do you expect more Series A conversions this quarter relative to last quarter?

  • Less than last quarter: 15
  • Same as last quarter: 28
  • More than last quarter: 16

Do you expect competition in seed rounds to be more or less competitive than last quarter?

  • Less competitive than last quarter: 10
  • Same as last quarter: 32
  • More competitive than last quarter: 17

Do you think the macro market will improve or worsen in 2023?

  • Improve immensely: 0
  • Improve: 14
  • Worsen: 44
  • Worsen immensely: 2

As mentioned, we plan to conduct this survey quarterly, so feel free to email anthony@eniac.vc with feedback!

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Eniac Ventures
Eniac Ventures

Written by Eniac Ventures

We lead seed rounds in bold founders who use code to create transformational companies.