CB Insights has just published a report that puts hard data behind all the rumors and fear-mongering about the so-called Series A Crunch. First, a refresher – There is much ballyhooing going on in the valley and in co-working spaces across the nation as stories mount that many of the startups that have recently received seed financing from angels or VC firms have been unable to raise a Series A round to keep their new businesses alive as they grow.
The report out today says it is all true. The headlines read like a entrepreneurial slasher-flick: 1000+ seed-funded companies will soon fail, $1B+ in seed financing will amount to nothing, and raising capital now takes more than a year on average.
Seed investments (pictured above) have grown wildly since ’09, while the amount of series A financing has remained relatively stable. As the publisher of the study points out, this “crunch” or “bubble burst” is just simple math. There is excess demand from startups for the amount of Series A capital in supply.
Looking on the positive side of this report, the coming year will be a great time for large and small companies alike to pick up motivated talent from these recently failed ventures. As the financing supply and demand equalizes, seed financing will be more difficult to get but will be less likely to go to bad ideas. Hopefully the entrepreneurial ecosystem comes out the better for this market correction.