223. Seed Crust: Backlogs Everywhere

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Join us for a live webinar about the state of the Seed market on May 2 @ 11:00 AM MT (1:00 PM ET // 10:00 AM PT)
https://stvc.us/seedcrust

The backlog in the private markets extends from IPOs to PE, all the way down to Series A. It's one of the primary drivers of so many startups stuck at Seed.

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Transcript

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Two years since I put out that first report and there are still backlogs everywhere.

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Everybody is very optimistic about exits this year and I love optimism and I am an optimist.

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But I'm also a realist.

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PitchBook in it's Q1 2024 quantitative perspectives report, they estimate that there's an IPO backlog, 47 tech companies.

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That was written in mid-March, there's already been a number of tech IPO since then.

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Looking at the private equity side and the private equity market is also important because that provides a lot of liquidity to the venture community.

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According to PitchBook, private equity dry powder has remained almost unchanged since 2020.

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But yet the remaining value, the value of the investments that they're still holding on to continues to climb up from 2.4 trillion in 2020.

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To 3.8 trillion.

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In 2023.

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That's a$1.4 trillion increase of the value of businesses on the books of private equity firms.

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They are also looking for exits.

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As we continue to work our way upstream, even Series A is feeling the pressure right now.

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I crunched my own numbers from Crunchbase, which is significantly more affordable for a small fund, like us.

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I found over 2,500 unique Series A's in 2021.

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Of those 89 raised an A2 or an A Bridge.

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614 of them raised a Series B.

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64 of them raised through Series C.

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139 of them had an exit, and 41 of them shut down, at least that were announced.

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That leaves 1,590 startups that raised a Series A in 2021 that have yet to announce anything since then.

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That was three years ago.

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That's 63% of Series A startups from 2021 that have yet to move through the system to the next phase.

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Backlogs everywhere.

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That brings us around to today, and what I'm calling the Seed Crust.

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There's overwhelming market pressure that is driving seed in circles.

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It's important to remember that there are more seed funds than ever before.

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In a great Venture Unlocked episode that I'll link in the show notes, Samir Kaji, said that his firm Allocate estimates that there are over 2,500 new seed funds in the market I've been talking about this for two years, about the impact that having all of this money in the seed market is having.

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And ultimately what's happening is that Series A raised the bar.

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The next piece that's happening is the time between funding rounds is rising for every stage except pre-seed.

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Why did pre-seed tick down?

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Because every single one of these 2,500 seed phase funds are looking at pre-seed saying,"Hey, give me what you got.

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I got to invest in something new." So you can raise that pre-seed round and then quickly follow on with a seed round and feel great about the velocity at which you're moving.

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Only to hit that pig in the pipe at the series a.

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And have to keep circling around and seed.

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As a result, Peter Walker over at Carta called 2023, the year of the bridge round.

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The number of bridge rounds at Priced Seed, Series, A Series B, Series C were all at five-year highs.

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Another chart from Peter at Carta, was it two year graduation rates from Seed to Series A plummeted.

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Startups are just circling around underneath this crust.

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Can't raise that Series A go back to your investors, raise a bridge round, raise a down round But it's not just effecting you, the startups, my friends.

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It's also affecting us the venture funds.

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To be continued tomorrow.

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In the meantime, be sure to go to stvc.us/seedcrust to sign up for the full report presentation next week.

223. Seed Crust: Backlogs Everywhere

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