The number of “seed deals” is slowing in Silicon Valley.

Every quarter, plenty of hay is made across many of the VC-focused industry channels about what this means.

My hot take — it could mean a few things.

Let’s assume the seed fund investment model requires seed funds to invest in companies that can grow 10x in value within 3–5 years, and get acquired or IPO.

For the entrepreneurs, this could mean that we are entering a period that has been long overdue — a necessary culling of the herd of me-too, hard-to-scale, low-potential companies. The high growth ideas are tapped for now, as the upper (or lower?) limit of Moore’s law is getting closer while we’re working through the the maturation of several tech platforms and their ecosystem of hardware/software support (Facebook, Google, Microsoft, etc.). The “supply side” of early stage, innovative ideas is withering while we’re waiting for the next quantum computer, “actual” AI, nanotechnology, and/or the Third Wave to come in.

For investors, they may be starting to become more immune to FOMO, or are tired of backing early-stage ideas because they’re hungry for deals. The “demand side” may be tired of reading post-mortem after post-mortem that look pretty similar, and are getting a bit more gun shy as the early stage technology market moves forward.

Additionally, as the always thoughtful Bryce Roberts of OATV notes:

“Today, there are over 500 new seed funds IN MARKET raising new investment vehicles. That doesn’t include the hundreds of us that are onto our second and third funds, let alone the seed funds that have gone upstream and increased fund sizes over time…

With small funds and small rounds, founders had options they didn’t have before. They could take on a small amount of capital and run their business profitably, they could sell early and have a life changing financial event while still producing a meaningful return for a small fund, or they could raise a more traditional round of funding from VCs buying a ticket to ride on a potential rocketship…

Fundraising has become our business model.

So, tho I am encouraged by the flood of available capital and managers from new and diverse backgrounds, I would encourage the incoming class of seed managers to think beyond the conventional wisdom and pattern recognition baked into the business of building billion dollar businesses.

A business model that depends on the business model of upstream capital will significantly limit the profile of founders one can fund and the outcomes they can achieve.”

I think there may be a chance that this lull in seed deals could be the beginning of a wave of business model innovation around seed funds. Think about it — what if funds are just moving back to fundamentals? Smaller funds, smaller gross exit multiples, but earlier exits and fewer writeoffs? Don’t the aggregate returns add up?

Time will tell.

Greg Bennett is Investment Analyst at VilCap Investments. Read more from Village Capital on our website or Medium page.