The path from seed to Series A has always been a critical juncture. Historically, a significant percentage of seed-stage companies would transition to Series A within 24 months: in 2018, this was around 20-24% of startups. Carta’s Q1 2024 report indicates a stark shift, with only 13% of companies that raised seed funding in the first half of 2022 progressing to Series A. This is a notable decline that spans multiple industries, signaling a broader trend rather than isolated cases, although fintech and hardware haven’t seen as pronounced of a drop.
In a similar vein, Pitchbook’s Q1 2024 Report shows that the median age of companies raising seed rounds in Q1 was 3.1 years, the highest on record. Similarly, those raising Series A rounds were 5.1 years old on average, also a record high over the past 10 years. Carta states that startups that raised a primary Series A round in Q1 waited a median of 766 days since their seed round, the longest interval of any quarter since the start of 2019. This increase in both the age of companies at various funding stages and the time between rounds reflects a broader trend of extended capital runways and the need for startups to demonstrate significant progress before advancing to the next funding round.
What’s Behind the Numbers?
Pitchbook’s data explains that today’s investments are characterized by higher selectivity and more stringent requirements. Investors are demanding stronger financial and developmental KPIs, ensuring that only the most robust startups receive funding. As a result, companies that do secure capital are often receiving larger rounds, providing ample runway to weather the current economic slowdown. On the other side of the coin, it could be argued that startups from the H1 2022 cohort have become more efficient, choosing to delay or even forego Series A funding. This efficiency could be a strategic move, with companies focusing on sustainable growth and operational efficiency rather than rapid scaling.
The current trends in seed-stage funding and the transition to Series A highlight a more cautious and selective VC environment. For founders, it’s valuable to understand investors’ focus on scalability and efficiency when approaching fundraising conversations as they navigate higher benchmarks and longer timelines to secure subsequent funding rounds. For investors, although it reinforces a self-fulfilling prophecy, the companies that do reach Series A can be a higher quality investment and provide an opportunity for a larger stake in the business. It’s clear that the path from seed to Series A has fundamentally changed – it remains to be seen if this will lead to a stronger, more sustainable startup ecosystem.
Tau Ventures is an AI-first early stage fund in healthcare, enterprise, and automation.
