Seed funding was the most resilient stage of enterprise investing during the downturn in startup funding, in accordance with an evaluation of Crunchbase data. In fact, while seed round sizes might be expected to be smaller under more stringent financing conditions, the variety of larger seed rounds has increased since 2021, highlighting seed expansion as an investment stage.
Investors are leaning towards seeds
As enterprise capital funding declined after the market peaked in 2021, investors gravitated toward seeds. This makes sense provided that the seed stage is typically the least dangerous stage for enterprise investors in a market reset because liabilities are lower, a latest wave of corporations are being funded, and the query of exit stays distant. By the time the current cohort of seed corporations matures, the funding cycle can be quite different.
However, if we take a closer look at seed funding, it is obvious that there has been a little bit of a change in shape in recent years: seed funding deals are getting larger on average, but also harder to get.
Seed shape
In 2024, seed funding reached $13.2 billion, down one-third, or roughly $5.7 billion, from a peak of $19 billion in 2022.
While this decline is not minor, compare it to early- and late-stage funding in the U.S., which is down roughly 50% from the peak market yr of 2021.
As of 2022, rounds above $5 million have change into a larger share of seed dollars, Crunchbase data shows.
Looking at the scope, sub-$1 million rounds totaled between $700 million and $1 billion annually from 2020 to 2024 and represented lower than 10% of seed amounts but north of 40% of deals.
U.S. seed rounds ranging from $1 million to $5 million grew in the peak years of 2021 and 2022. Transactions of this volume have returned to levels closer to 2020 levels in each numbers and amounts in 2023 and 2024.
However, in recent years there has been a noticeable shift – although still a small proportion of deals – towards larger rounds of seed funding.
In 2021, the percentage of seed funding allocated to larger seed rounds – those over $5 million – increased, and as of 2022, these larger seed rounds received more investment than seed rounds of $5 million or less.
Larger seed rounds that peaked in 2022 didn’t decelerate as much in comparison with smaller seed rounds during the downturn years, remaining elevated in 2023 and 2024 in comparison with 2020 and earlier.
Spreading seeds
Since institutional seed investing began in 2005, the asset class has grown from a select few seed-stage corporations writing small checks to hundreds of seed funds supporting fledgling startups. Early-stage and multi-stage funds also began investing in the seed phase, with some writing larger checks at this stage. With this growth, the seed investment category also became flexible and expanded to incorporate pre-seed, seed and pre-Series A investments.
Tougher for founders
As the bar for raising Series A or B funding became tougher during the downturn, some founders stayed at the seed stage longer and increased the variety of subsequent seed rounds. As a result, seed material became the financing stage.
“I see a big discrepancy in the seed rounds,” he said Michał KardamonCEO of the New York-based company Forum eventslively seed investor, in a recent interview. “There are still some seed investors scratching their heads at the valuations they are paying, knowing that the A round will be raised for less than twice the amount they are paying for the seed round – if everything goes perfectly well. – he said. “And then you see a lot of products that are really price disciplined. So the valuation variance that we see at the time of flooding is quite large. And I think everyone deals with it differently.”
Meanwhile, the bar for corporations that wish to obtain seed financing in a harder market has increased. Most founders need to achieve significant traction before they’ll raise seed funding, Cardamone said. “A truly institutional seed round of $2.5 million to $3 million is more difficult in this market,” he said.
Emerging managers also find it difficult to acquire investment funds. “They’re trying to make existing funds last longer so they don’t have to go back to the market,” Cardamone said. “They can write a smaller check but get the same ownership in the pre-seeding round.”
However, as the market resets, latest opportunities emerge.
“Valuations are coming down, there is more talent available in the market and it is easier to recruit,” Cardamone said. “Many of these seed and Series A companies are looking to scale into the next bull market.”
Methodology
For the purposes of this evaluation, we only included seed and pre-seed funding rounds for U.S.-based corporations. Due to delays in access to data, the variety of seed funds in 2024 will increase over time in comparison with previous years.