May 8, 2024

228. Seed Crust: Seed To Series A Graduation Rates

228. Seed Crust: Seed To Series A Graduation Rates
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Season 4

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 


About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast - get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

About SpringTime Ventures
SpringTime Ventures seeds high-growth startups in healthcare, fintech & insurtech, and logistics & supply chain. We look for founders with domain expertise, forging a path with a truly transformative technology. We only invest in software-based businesses in the USA. We bring a people-focused approach, work quickly, and reach conviction independently. Our initial check size is $600k. You can learn more about us and our approach.     

Transcript
WEBVTT

00:00:01.000 --> 00:00:05.679
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.

00:00:50.762 --> 00:00:52.301
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.

00:01:15.942 --> 00:01:20.013
They're crowding attention from people who are looking to invest into A's, et cetera.

00:01:20.093 --> 00:01:23.472
And then they have to make a choice of, do we try to keep going?

00:01:23.572 --> 00:01:24.593
Do we try to shut down?

00:01:24.692 --> 00:01:26.033
Do we try to sell ourselves?

00:01:26.412 --> 00:01:28.783
And those decisions are made over a weird timeline.

00:01:28.783 --> 00:01:31.582
So it's this messy middle in the earliest part of the market.