"If the returns on the seed side start to dip. What would stop stop seed investors to graduate & become (smaller) VCs."
The math doesn't work. Early-stage investments are risky, by nature, and so investors take a scattershot approach to allocation -- it's safer to invest $10k in 100 startups than to drop $1M on one, because one of those 100 startups will probably more than offset the losses from the other 99. Thus, it's a conceivable thing for a moderately rich individual to do. But there are comparatively few people who can afford to invest $1M+ in a single company. The risks are too high.
The whole pyramid won't just "shift down" a level because at some point (the point we're calling "series A"), the investments have had some time to prove themselves in the marketplace. Investors get a lot pickier, because they have a lot more information.
The math doesn't work. Early-stage investments are risky, by nature, and so investors take a scattershot approach to allocation -- it's safer to invest $10k in 100 startups than to drop $1M on one, because one of those 100 startups will probably more than offset the losses from the other 99. Thus, it's a conceivable thing for a moderately rich individual to do. But there are comparatively few people who can afford to invest $1M+ in a single company. The risks are too high.
The whole pyramid won't just "shift down" a level because at some point (the point we're calling "series A"), the investments have had some time to prove themselves in the marketplace. Investors get a lot pickier, because they have a lot more information.