We have decided to step back from the latest news for a minute to give an overview of the development of seed and early-stage financing for US companies over the past decade.
I'm pretty sure we all agree that the startup environment has changed dramatically in the last 10 years, in two ways:
- The development of seed funding as a separate class and
- The expansion of growth investments.
What we have also seen are the recent concerns over the decline in seed funding from Mark Upter's partner, UpFront Ventures, because early stage funding (Series A and B) has not grown adequately to support this growth in the US Seed-funded companies. This is often expressed as series A crunch.
When venture capital funding is at an all-time high and growth in Supergiant rounds is on the rise, this now seems to be an appropriate time for this type of review.
Setting the stage
Let's first set the stage for our analysis and explain where our data comes from, with a few brief facts:
- Rounds under a million dollars can be the hardest to capture, as many Fishing and pre-seed deals are not reported.
- Fortunately, Crunchbase has an "active founding community" that adds early financing.
- Under "Active Founding Community" we refer to many founders who are active on Crunchbase, as founders, and their financial resources.
- About 47 percent of the $ 5 million in funding is contributed by contributors in the US. This is different from our analyst teams, who process the messages, follow Twitter, and work directly with our risk partners.
- For this we feed the US rounds of financing by size to indicate the stage.
- Given the high percentage of self-reported seed funding, data added after the end of a quarter must be taken into account.
- For this reason, we use projected data for many quarterly Crunchbase reports to more accurately reflect recent funding trends. For the diagrams below, we use actual data, with some provision for data delay in discussing the trends.
Let's take a look at the trends.
One Million Dollar Rounds Drop
At less than $ 1
In 2018, the number of start-up financing compared to 2015 was below $ 41 million and 35 percent. Since the data can still be added long after the round at this time, we expect that in 2018 a relative increase of 20 percentage points will be achieved compared to 2017.
If we take this into account, the seed financing of 2018 counts and the amounts below $ 1 million decreased compared to 2015 by 30 and 23 percent, respectively. In other words, seed below $ 1 million is closer to the levels of 2012 and 2017.
$ 1 million to $ 5 million rounds flatten
The round of $ 1 million $ 5M also saw growth from 2008 to 2015 more than triple the numbers and nearly three times the amounts. Growth has been stalling since 2015. In the last three years, however, no significant downward trend can be seen. The invested dollars are stable from 2015 to 2017 at 7.5 billion US dollars. The number and number of sums decreased by 12 percent in 2018 compared to the 2015 level for the number of transactions and by 6 percent for the amounts.
last year or quarter as the data is received after the end of the last period. If the trend extends over a longer period of time, this is a stronger signal for the change in the market. Based on data added after one year-end for the previous year, we estimate an increase of 10 percentage points compared to 2017. In 2018 this would roughly correspond to the rounds of 2017 and a slight increase in the amounts.
Seed occupy greater proportions
Why does the seed become flat? Seed investors report spending more dollars on fewer deals. In obtaining more substantial funds, they are investing more dollars in the same number of transactions. Seed funds must have enough equity for a meaningful mission should a startup survive to increase subsequent rounds. Seed funds invest in fewer start-ups for more equity.
Larger venture capital funds take a less active role in seeds
. UpFront Ventures & # 39; Suster (mentioned above) also says that larger venture capital firms are becoming less active in the seeds business The startup phase may limit their ability to invest in competitive startups that are emerging as a growing competitor in a particular sector. The growth of larger funds in ventures allows companies to mature before they invest, possibly pay more to get the equity they want, and start-ups that do not grow so quickly can not fail or be acquired.
As Fred Wilson of Union Square Ventures states, "In the first five years of this decade, we saw the seeds of the market explode. In the last five years of this decade, the growth part of the market has exploded. However, over the last ten years, the middle part, the traditional venture capital market, has not changed significantly. "
The middle is growing
In the middle are the rounds of the series A and B (formerly the first institutional) money in) the market has almost doubled for 5 to 10 million USD rounds, but from 2008 to 2018 lasted. Growth was slower in the same period than under $ 5 million. The growth continued even after 2015. Since 2015, the rounds have been slightly declining for one year and will continue to increase in 2017 and 2018. The number has increased by 17 percent compared to 2015 and the dollar by 18 percent.
Rounds of $ 10 to $ 25 Million Grow
Rounds of $ 10 to $ 25 million have increased by 73 percentage points over the past 11 years, and by 78 percentage points for sums. This is a slower pace than between $ 5 million and $ 10 million, but has continued to improve from year to year.
Seed is its own class that will remain. In fact, pre-seed, seed and seed extension seem to have a certain dynamic. Of the more than 600 active seed funds that have raised $ 100 million under funds, nearly half have raised more than one fund. For the past three years, we have not seen a slowdown in the US for $ 100 million and under seed funds.
If we take into account the data delay, the dollar is expected to be $ 8.5 billion under $ 5 million, close to $ 8.6 billion in 2015. The number of transactions has dropped by one-fifth, which means fewer seed-start start-ups need to be cut in the US. Assuming that the capital allocation is greater than $ 5 million, the number of start-up companies funded by seed capital before a Series A is established increases the chance of success for seed funds and, ultimately, for the entire ecosystem.