U.S.-based seed startups are taking longer to raise funding for their subsequent Series A rounds. Crunchbase data shows that the median time taken by startups to raise Series A rounds after closing a $1M+ seed round increased from 21 months in 2022 to 25 months in Q1 2023. With the VC funding headwinds persisting, this trend will likely continue until early next year. Time taken between seed and Series A funding rounds has consistently increased over the past few years. The time taken is higher than its previous peak of 24 months in 2020 and nearly twice the 14 months in 2014. However, the median time was shortened in 2021 and 2022 to 22 months and 21 months, respectively, due to the free flow of capital. Seed startups have shown resilience to the VC funding pullback. While funding for seed startups dipped, the slump was more gradual than the dip witnessed across all other stages. Also, the venture funding pullback started impacting seed startups much later in the last year. The retreat started in Q2 2022. By the third quarter, seed funding was flat year-on-year. It wasn't until Q4 that the dip actually impacted the sector, causing funding to decline to $3.3B. The slump continued into this year, with Q1 2023's quarterly total coming in at $3.1B. However, the dip has significantly impacted startups across all other stages, making fundraising challenging for non-seed-stage startups. Seed-stage valuations are less prone to fluctuations, unlike late-stage startups, which helped soften the pullback blow. Additionally, VC firms that were focused on late stages started concentrating their bets on early stages, especially around seed stages. While startups were able to raise seed rounds despite the funding, they will likely face difficulty raising their next round of financing. With more seed-funded companies in the pipeline than ever before, more startups will be vying for the Series A rounds. The market is expected to be flooded with 4,400 startups looking to raise Series A rounds, 2,000 of which have not raised any new post-seed funding since 2021. Although the remaining 2,200 startups raised funding in 2022, they will also be in the mix and competing for the next Series A rounds. Per Crunchbase, over two-thirds of U.S.-based startups that secured $1M or more in a seed round between 2012 and 2017 went on to raise post-seed investment. Now a lower number of startups will raise subsequent Series A rounds. The median time taken to raise a Series A round after a seed round has also increased as investors are taking longer to ink deals to ensure proper due diligence is being conducted, especially considering the lapses on their part on deals such as FTX. |
