In the first half of 2024, U.S. seed funding reached $6.4 billion, unchanged from the second half of 2023 and down from $7 billion in the first half of 2023.
However, in the recession after the peak of 2021, seed was the most robust of all stages of funding. In 2022, early and late stage funding declined, while seed funding grew yr over yr.
Seed production slowed from 2022 in comparison with peak years but still significantly exceeded 2020 volumes.
This dynamic has raised concerns about where it will all lead, as the hurdles to securing Series A funding have turn out to be harder to beat.
According to Crunchbase data, as of 2021, a larger variety of firms are still in the seed stage and their possibilities of raising Series A funding are lower.
In every market, a significant slice of seed firms never make it to Series A. For firms that raised at least $1 million in 2020, about half made it to post-seed. For the 2021 cohort, that number drops to a third, in accordance with current data.
As of 2021, graduating from highschool has turn out to be tougher.
The seeds also became larger
Based on our evaluation of Crunchbase data, we found that larger seed rounds gained momentum in the boom yr of 2021, which we’d expect. However, during the market decline in 2022, when Series A funding became elusive, larger seed rounds continued to grow.
The variety of seed rounds exceeding $5 million increased in 2021 as round sizes at all stages increased. This trend continued in 2022, with greater than 50% of seed funding and greater than 10% of seed rounds exceeding $5 million. (We exclude seed rounds of $100 million or more in this evaluation.)
While this represents a small fraction of transactions and a growing percentage of seed-stage dollar volume, it is not what one would expect in a market recession.
Over the past decade, the seed stage has turn out to be a more flexible phase, broken into separate stages—pre-seed, seed, pre-Series A—as firms reach different milestones on their option to Series A.
During the recession, investors at every stage focused on the seed stage, which is considered less dangerous because the expected returns are 8 to 10 years.
In this market, seed round sizes haven’t declined as firms prepare for a longer wait to achieve Series A. As a Bay Area investor Jenny Lefcourtpartner at seed investor Freestyletold Crunchbase News earlier this yr about investing in the crisis, “our valuations were actually higher in this market, which is not what we expected.”
It takes longer and is harder to interrupt through to Series A, in a tougher sales environment. And once you get to Series A, the next path is Series B.
In an uncertain financial environment, staying in the seed stage may look like the best choice.
Methodology
For US seed funding, we include angel, pre-seed, and seed funding rounds. For this evaluation, we excluded seed funding of $100 million or more.