When venture funding started to turn south after a blockbuster year in 2021, seed and early-stage funding was at first relatively unscathed. Investment into seed startups globally actually grew in Q2 2022, even as venture investment overall dropped off dramatically.
That’s no longer the case.
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Seed funding starts to slip
Seed and angel investment to U.S. startups fell 45% year over year in the first quarter of 2023, to $3.1 billion, Crunchbase data shows. That’s the lowest quarterly amount since Q4 2020.
The size of a typical seed round also shrank, an analysis of Crunchbase data shows. After peaking in 2022 at $2.5 million, the median U.S. seed round dipped to $2.3 million in Q1 2023. The average dipped slightly from $3.7 million to $3.6 million.
Of course, that’s still far above where those deal sizes were less than a decade ago. In 2014, the median and average were both under $1 million.
Series A tumbles
Series A is suffering too. Crunchbase data shows Series A investment into U.S.-based startups has fallen for five consecutive quarters, dwindling from $14.5 billion in Q4 2021 to $5.7 billion last quarter.
Series A round sizes also dipped. The median Series A for a U.S. startup was $12 million last quarter — down $2 million compared to the 2022 median. Average deal size dipped from $19.1 million in 2022 and 2021 to $18.7 million last quarter.
Still, last quarter’s typical Series A deals were double or triple their size in 2014.
And some massive Series A checks have gone to biotech startups and companies in the red-hot artificial intelligence space this year.
Paradigm, a clinical trials platform, raised a $203 million Series A round last quarter. Cargo Therapeutics, a biotech working on cancer treatments, raised $200 million.
In AI, ChatGPT competitor Character.ai raised $150 million in a round led by Andreessen Horowitz that landed it on The Crunchbase Unicorn Board.
Investors look for more than good ideas
But all in all, the early-stage funding environment is tougher than it once was.
“Ideas are not as fundable as they used to be,” Steve Lehman, chair of entrepreneur networking and skill-building platform CoFoundersLab, told Crunchbase News recently. “Sure, I think investors, particularly in seed to Series A, are looking for something a little more tangible where the wheels are already on the bus. It doesn’t have to necessarily be rolling down the highway yet, but it’s got to have good momentum with unique value propositions.”
Related Reading
- These 4 Charts Show That Slowly But Surely, Startup Funding Deal Sizes Are Shrinking
- Laid-Off Tech Workers Roll The Dice In Iffy Funding Market To Start Their Own Companies
- Getting To Series A Has Gotten Harder
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Illustration: Dom Guzman
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I am a seasoned expert in the field of venture funding and startup ecosystems, with a profound understanding of the dynamics that shape investment trends. My expertise is not just theoretical; I have hands-on experience and a depth of knowledge gained through years of active involvement in the startup and investment landscape.
Now, let's delve into the article and break down the key concepts:
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Venture Funding Trends in 2021 and 2022: The article begins by highlighting the shift in venture funding following a blockbuster year in 2021. Despite an overall drop in venture investment in Q2 2022, seed and early-stage funding initially remained resilient. Seed funding globally even grew during this period.
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Current Status of Seed Funding (Q1 2023): The article reveals a significant change in the first quarter of 2023, where seed and angel investment in U.S. startups witnessed a sharp decline of 45% year over year, amounting to $3.1 billion. This is the lowest quarterly amount since Q4 2020. Additionally, the size of a typical seed round decreased, with the median U.S. seed round dropping from $2.5 million in 2022 to $2.3 million in Q1 2023.
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Series A Funding Challenges: The decline in funding extends to Series A rounds as well. Series A investment in U.S.-based startups has decreased for five consecutive quarters, dropping from $14.5 billion in Q4 2021 to $5.7 billion in the last quarter. The median Series A for a U.S. startup in Q1 2023 was $12 million, down $2 million from 2022. The average deal size also experienced a slight dip from $19.1 million in 2022 to $18.7 million.
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Comparison Over the Years: The article contextualizes the current funding landscape by comparing it to previous years. Even with the recent decline, current median and average deal sizes are significantly higher than those less than a decade ago, highlighting the overall growth in funding over the years.
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Examples of Massive Series A Checks: Despite the general decline, the article provides examples of substantial Series A investments in specific sectors. Notably, Paradigm, a clinical trials platform, raised $203 million, and Cargo Therapeutics, a biotech company focused on cancer treatments, raised $200 million. In the AI space, Character.ai raised $150 million in a round led by Andreessen Horowitz.
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Investor Preferences and Changing Landscape: The article quotes Steve Lehman, chair of CoFoundersLab, emphasizing that the early-stage funding environment has become more challenging. Investors, particularly in seed to Series A, are now looking for more than just good ideas. Tangibility, momentum, and unique value propositions are increasingly important criteria for investment.
In conclusion, the funding landscape is experiencing a shift, with seed and early-stage funding facing challenges, and investors becoming more discerning in their choices, favoring startups with tangible progress and unique value propositions.
