As we’ve been documenting for a while, Seed VC investing has been growing at a torrid rate since Q1 2010 having climbed 483% in the last ten quarters.  Comparing this to Series A deal activity which has increased 51% over the same period provides a sense for the popularity of Seed VC rounds.  Seed VC which refers to smaller investments, generally less than $1 million, made by VC firms, are of course, growing off a smaller base, but nevertheless, the ascent of Seed VC has been swift and significant.  In Q2 2012, Seed VC deals hit another high notes as the graphs below illustrate.  Across all sectors, there were 175 Seed VC deals in Q2 2012 as compared to 219 Series A deals.  But as is clearly evident, there has been a significant and steady closing of the gap between Seed VC and Series A in terms of deal volume.  Only 2 years ago, for every 8 Series A deals, there were around 2 Seed VC deals.  In the first two quarters of 2012, for every 6 Series A deals, there are 4 or more Seed VC investments.

 


While the gap between Series A and Seed VC volume has closed across the entire range of VC investments, the shift has been most pronounced in the internet sector where Seed VC investments are actually outpacing Series A deal activity in quantity as illustrated below.  Out of the 175 Seed deals in Q2 2012, 111 were from the internet sector. As we look at internet deals, we see that Seed VC deals have increased 455% Q1 2010 to Q2 2012 growing from 20 to 111 deals.  Over the same period, Series A deals have grown from 58 deals to 107 – an 84% growth rate.

Data related to this research

  • Early Stage Tech Feed

  • A weekly feed of all the tech companies receiving Angel, Seed or Series A investment. Available in csv, JSON or XML formats.

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  • http://twitter.com/acohenNY Andrew Cohen

    Interesting data. It would be more useful if you could separate funding recipients by *cohort*. For example, for those who received Seed rounds last year, who has now raised an A round this year? Of those who received Seed funding this year, who will raise an A round next year? Etc.

    Otherwise, there’s no way to know if this recent Seed up-tick is just the first phase in the next *overall* early-stage VC deal boom, or whether it is indeed a skewing of VC investment preferences toward earlier-stage companies.

  • http://www.facebook.com/aniljain Anil Jain

    Thanks for sharing this information. What qualifies as a “Seed VC” deal? If Dave McClure or Chris Sacca, for example, make investments, are they considered Seed VC deals or Super Angel deals? Have you lumped those two categorizations together in this analysis?

  • http://www.cbinsights.com Anand

    Anil – Thanks for the question. Our rule with classification of early-stage rounds is that if you’re investing your own money, then you are an angel investor. If you are investing other people’s money (aka Limited Partners), then you are a VC.

    So in the case of Chris Sacca or Dave McClure, if their funds, Lowercase Capital and 500 Startups respectively, are making the investments in a round, those could be classified as Seed VC investments.

    The term Super Angel is a bit of a misnomer in our view as it really is talking about small VC funds ($25-$50M) or what we’d call a micro-VCs Despite their relatively small size, however, those are still VCs (investing Limited Partner money) and so are considered as such in our analysis.

    An investment by individual angel investors or an angel group, however, is not considered in the above data.

    Hope that helps.

  • http://www.cbinsights.com Anand

    Andrew – thanks for dropping by.

    And agreed – cohort analysis would be good to see how many of those Seed VC deals are translating into Series A transactions (at least for some of the older Seed deals). So this is coming soon.

    But that ultimately is a separate analysis.

    The growth of Seed VC shows that VCs increasingly like these “call options” on early-stage companies. And while there is a boom in Seed VC (i.e. more companies getting Seed rounds), the reality is that not all these Seed VC deals can get follow-on funding and so many will either (1) die and the founders/team will join other startups or big cos, (2) be orphaned while they figure out a shorter path to revenue or a new plan, or (3) get acqu-hired.

  • http://www.pointsandfigures.com pointsnfigures

    Provocative post. I am curious about Series A. The anecdotal evidence is it is hard for companies to raise a Series A or B, but much easier to raise a seed. So many companies are doing uncapped conv notes that really resemble more of an A round than a seed round, that the financing picture becomes a little muddled. Look forward to your continued analysis.

  • ChicagoAngel

    Great post! Thank you!

    If the internet sector is the big driver behind the trend, could the trend also be that it is increasingly cheaper to test IT models than it used to be… in other words, we are seeing “test for less”? Certainly not the case in cleantech, med devices or lifesciences

  • http://www.cbinsights.com Anand

    Yes – this is the the primary reason Seed VC is a tech phenomena. It’s much easier to show some early traction, product with a small amount of money in tech. Doing this in the other areas you mention (clean tech, med devices, etc) is not really viable.

    Although just because it’s cheaper to get to minimum product doesn’t mean it should be funded :)

  • http://www.cbinsights.com Anand

    Thanks for your comment. The other interesting application of (1) and (3) that we’ve seen among clients is using our data to identify companies that are unlikely to raise Series A/B with the aim of poaching talent from these flat-lining companies. The war for technical talent is in its early days but looks to only get fiercer.

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