For companies launched after 2012, raising larger seed rounds is correlated with higher chances of raising Series A financing, data show. In the current era of startup funding, “burn rates are high, startups are raising more than they likely need, and the rate at which they can make it to Series A is lower now than a decade ago,” writes Jason Rowley.
What does the analysis show?
- It’s more expensive to start a startup today than it was in the past. Note the steadily increasing rate at which startups successfully raise Series A rounds as they raise more from Seed and Angel investors.
- Too much money really did spoil a bunch of startups. There is a very clear tipping point—somewhere between the $2-2.5 million mark—at which pre-Series A stage startups of a certain vintage were spoiled by too much money.
- “Series A Crunch” is real. To recap: the Series A Crunch theory suggests that the number of Seed and Angel financing rounds ballooned over several years (more than 5x between mid-2008 and 2012, according to Jason Calacanis, who at the time dismissed the theory). However, the number of Series A financing rounds had remained relatively fixed.
- The majority of startups that raised Seed or Angel funding before 2012 successfully raised Series A rounds at a much higher rate than those funded between 2012 and 2014. That even takes into account those companies that raised pre-Series A money during the Great Financial Conflagration of 2008-2010.
As we’ve previously shown, about two-thirds of startups fail to make it to Series A.
In startup and VC lore, it seems to make sense that we now have the Dot-Com Bubble era, the Pre-Crunch era, and the Post-Crunch era. For Seed and Angel-funded companies in the Post-Crunch era, burn rates are high, startups are raising more than they likely need, and the rate at which they can make it to Series A is lower now than a decade ago.
Mattermark (10/26)
