228. Seed Crust: Seed To Series A Graduation Rates

Text your thoughts directly to Rich.

Startups getting from Seed to Series A in two years has dropped by a third. It's creating a "messy middle in the earliest parts of the market," according to Peter Walker.

Seed Crust: State of the Seed Market 1H 2024
Most startups at Seed are circling around, unable to break through to Series A. We're calling this the Seed Crust. I recently released a market report covering:

The market forces behind this
What it will take for this to change
The paths forward for founders stuck

Download the report and watch the event here: https://vcminute.substack.com/p/seed-crust

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Transcript

WEBVTT

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You have more money at seed than ever before, and this has caused Series A to raise the bar.

00:00:06.150 --> 00:00:09.378
Peter, this is your graduation rate chart, what's your take on this one?

00:00:10.007 --> 00:00:20.272
Graduation rate in this case simply means we did an analysis of the percentage of companies that raised the priced seed round that ended up getting to Series A within two years of their seed.

00:00:20.818 --> 00:00:28.948
If you raised your seed round in Q2 of 2020, one third, more than a third of those companies got to an A within two years.

00:00:29.428 --> 00:00:34.948
If you did the same thing in Q1 2022, only 12% have gotten to the A in two years.

00:00:35.847 --> 00:00:43.518
Obviously, there will be people that get to A after the 2 year mark, but it is illustrative of the slowdown from these vintages.

00:00:43.707 --> 00:00:50.171
There's just a consistent cross-industry slowdown in the percentage of companies that can break through from seed.

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And then what are they doing instead?

00:00:52.771 --> 00:00:56.871
Bridges, extensions, convertible notes, crowdsourcing sometimes.

00:00:56.921 --> 00:01:01.462
There's just a agglomeration of so many different ways to get money into a business.

00:01:01.972 --> 00:01:08.022
But those are not the same thing as moving along the venture stages and actually achieving the metrics that you need to get to A.

00:01:08.891 --> 00:01:13.492
Rich, I think the point that you've made really well here is, it's not like those companies just go away.

00:01:13.492 --> 00:01:15.942
They're crowding the market.

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They're crowding attention from people who are looking to invest into A's, et cetera.

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And then they have to make a choice of, do we try to keep going?

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Do we try to shut down?

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Do we try to sell ourselves?

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And those decisions are made over a weird timeline.

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So it's this messy middle in the earliest part of the market.

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