Series A Cliff

SeriesACliff

All this chatter of a Series A Crunch makes light of a widening gap that looks more like the jaws of death for many seed funded startups, as the gap between Seed and A is becoming a yawning cliff. As part of our VC Outlook for 2013, we incorporated the latest info from CBInsight, as gathered by the ever-diligent Dan Primack.  The Crunch data is usually presented as this year’s Seed vs. this year’s A, but because this year’s Seed will seek the A round next year, it really should show Seed shifted one year to the right, as we do below. The growing maw of the Series A Cliff is now vivid.

Bullpen follows the seed funds and provides an alternative to the A, not a bridge, so we watch the Seed-to-A market closely. We have noticed an increasing tendency of the seed funds, as they have grown in size, to inside-bridge their deals towards the A.  They may find these are more piers to nowhere than bridges to A.

7 comments

  1. In Lake Woebegone, the increased number of Seeded companies are all equally wonderful. In the real world, it seems likely that as the number of Seeded companies goes up, the average quality goes down, so we should expect a higher attrition rate. In the slightly more pessimistic view, the number of quality companies (to reach Series A) is independent of the number of companies founded. In the more pessimistic view, the number of quality companies goes DOWN with increasing number of investments, as the seed investors fund multiple companies pursuing essentially the same idea — those me-too companies subsequently engage in fratricide, dragging some inherently good companies to an untimely end.

  2. [...] For Paul Martino and Rich Melmon, both managing directors at Bullpen Capital (along with co-founder Duncan Davidson), all the recent chatter about “The Series A Crunch” validates their initial thesis from three years ago. Back in 2009, the folks at Bullpen saw the delta between the number of seed deals and Series A checks growing, largely because more companies were getting funded. With the hint of an idea for a new fund, Martin, Melmon, and Davidson quickly formed Bullpen and, unlike many talking heads opining on the Series A crunch now, went and put their money and reputations where their mouths were. [And, just this week, Bullpen released a new report with new data called "The Series A Cliff," which can be downloaded here.] [...]

  3. [...] on Midwest startups). A fund like this would help address a Series A gap, something that’s a growing problem everywhere. An idea like Kvamme’s, which runs counter to traditional VC behavior and industry-wide [...]

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