October 31, 2014

Is there a Series A Crunch?

There is a LOT of discussion about a so-called “Series A crunch“: startups who receive seed or angel investment not being able to raise their first institutional round of financing. I would argue there really ISN’T a Series A Crunch, but instead a proliferation of seed and angel deals and this is a GOOD thing. First lets look at the numbers (via CNN, CB Insights):

No. of Deals   2009   2010   2011   2012 ytd
Seed/Angel      472     770     1064  1747
Series A             418     515       703    688

From 2009 to present there has been a small increase in Series A deals, but a HUGE increase in seed/angel deals. The advent of the cloud and agile software development techniques mean that a lot of startups can get to their MVP (minimum viable product) without raising a Series A. With a small amount of angel or seed funding a company can build and launch their product AND get user feedback very quickly.

So is the increase in seed and angel investments relative to Series A investments a bad thing? First, I would argue it is great news for entrepreneurs because it gives them the ability fail faster, more frequently with less risk. If you are lucky enough to get a Series A investment it can take you three to four years to fail – this means an entrepreneur is lucky if she gets three or four times at ‘bat’ in her career. The proliferation of seed and angel rounds opens up the possibility of several more times at bat. Second, I would also argue that it is great news for investors because it creates a much larger pool of entrepreneurs with experience – eventually the pool the increased angel and seed rounds are creating will lead to an increase in Series A deals – its just going to take some time.

Don’t worry about the Series A crunch, instead celebrate the explosion in early stage deals.

 

Share

Comments