There’s a growing gap between companies raising seed rounds and those that go on to raise series A.

A lot has been written in recent weeks about the so-called “Series A Crunch” — the idea that many of the companies raising seed-rounds won’t be able to attract that ever-so-important next round of capital. Now, here’s a chart from Pitchbook which shows what is occurring.

As you’ll see above, the number of seed-stage/angel deals has nearly quadrupled in the past four years. Meanwhile, series A financing rounds haven’t budged much. Pitchbook notes that the ratio beween seed stage and series A now stands at 3.3 to 1. In 2008, that ratio stood at just 1.9 to 1.

I spoke to one entrepreneur last week who is stuck in this netherworld — struggling to raise a series A financing deal. It doesn’t sound pretty.

In fact, CB Insights released a report last month which indicated that more than 1,000 seed-stage companies could be “orphaned” — meaning they won’t be able to raise their next round of cash. That will lead to more than $1 billion in investment capital being “incinerated,” which CB Insights noted was part of the natural selection that goes along with startups.

Pitchbook offers a few more details on what’s going on:

“Some people fear that the growing size of VC funds and late stage financings could create a scarcity of capital for companies in early stage rounds. This fear is compounded by the fact that VC capital invested has outpaced fundraising for four consecutive years now. Others say that this is just a natural VC cycle, and we will see follow-on early-stage rounds pickup now thanks to the increasing number of companies receiving angel/seed funding.”

The report also notes that not all seed-stage companies go on to raise a series A, with some entrepreneurs returning to their angel backers for multiple rounds. Let us know what you are experiencing on the fundraising trail? Good times? Tough times?

Previously on GeekWireVC investments double in Washington state on strength of big deals for Zulily, Meteor

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  • Duncan Davidson

    John, nice post. PitchBook and CBInsights come to similar conclusions. One way to look at this is to right-shift the seed deals a year, since typically they raise a year later. Seed in 2011 should be compared with A in 2012 for example to see the real gap. I call this the Series A Cliff since it is growing into quite a maw. One structural change in the VC industry that exacerbates the Cliff is the shrinkage of small to mid-sized funds. The bigger Series A funds simply cannot consistently fund the lean growth round of $2-3M; they need to put more money in play. We formed Bullpen with this in mind, to create a fund to focus on the lean growth rounds after seed funding that come in below the Series A level of funding and need that $2-3M round to get to a much larger “shovel in” round.

  • Aaron Evans

    Two observations:

    1.) There are just more seed stage startups these days. With YCombinator, et al, it has increased the number of startups, but not necessarily the amount of VC funding. Also, the capital needed (as Paul Graham noted) to succeed as a startup (especially software) is so much smaller now.

    2.) There aren’t that many startups that have the scalable profit potential that Venture Capital needs. IPOs are by and large a thing of the past. Whether Sarbanes-Oxley, the recession, or a slowing of technical progress are to blame, I don’t know. Buyouts are even riskier. You’re much more likely to get purchased if you are seen as a competitor (like Instagram) to an established company than if you have growth potential. But the Instagram example shows the other side of this — most major valuations are for trivial, ephemeral, fad driven products which have no material worth or likely long-term value.

    No one thinks Facebook will be around 5 years from now. Of if it is, we won’t recognize what they do — maybe make Fortran compilers? The Googles and Facebooks of the world have only 1 market advantage — more capital than anyone else.

  • Sanjay Puri

    I glanced through the reports but didn’t find the answer. Curious what the ratio is for Washington state startups, I would imagine that the ratio here is better than 3.3:1, purely because seed stage startup activity here is slower than other parts of the country. Would love to see some real data proving or disproving that.

  • Capital Window

    That’s why 2013 will be the year of the DPO. All Series A companies that need access to capital please visit

  • Terrence

    Hi John, I keep coming back to this article and linking to it when emailing other startup investors or posting on Quora.

    Can you guys please update the chart?

    Thanks for anything you can do here.


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