Seed investment activity is shifting away from hedge funds and other liquid strategies and moving toward private equity and private credit, according to Seward & Kissel’s 2024 Seed Transaction Deal Points study.

The study, released on Monday by the New York-based law firm, highlights how this transition is influencing both the structure and substance of seed transactions. While hedge funds have traditionally attracted the bulk of seed capital, the firm’s data indicates growing interest in less liquid private market strategies.

“This evolution has driven innovation in seed deal terms,” said Gary Anderson, a partner at Seward & Kissel and the study’s lead author. He added that private market strategies may soon surpass hedge funds in seeding volume.

The study also points to the continued dominance of institutional investors in the seeding space. These investors are deploying larger check sizes and placing greater emphasis on structural alignment between themselves, fund managers, and prospective investors. The result is a set of terms designed to balance risk, encourage long-term commitment, and share startup costs.

“The growing emphasis on alignment — whether through shared startup costs, synchronized liquidity terms, or long-term support mechanisms — reflects a maturing market,” Anderson said. “Institutional seeders are not only providing capital but also shaping the strategic trajectory of new investment platforms.”

Other findings in the report show that illiquid fund structures are prompting greater variety in deal terms, and that incentive frameworks are being used to encourage managers to build durable businesses aligned with long-term investor interests.

Seeders are also more frequently taking on startup costs and adopting liquidity terms that mirror those offered to future investors, while incorporating safeguards against market volatility.