Once you take venture capital, what can you expect? Below is what the data says life will look like.
But first some notes:
- This report analyzes a cohort of tech companies that raised seed funding in 2009 and 2010, and follows them all the way through 11/19/2015. This is a sufficiently mature vintage for us to conduct this analysis on, i.e. these companies have had enough time to succeed, or fail.
- Of note, Seed deals were on the whole less prominent in 2009-2010 than they are now. They’ve risen in popularity in the last few years with the explosion of micro VCs and the greater frequency of Seed deals by multi-stage funds. If we were to repeat this analysis a few years from now, the numbers could look very different.
Some of our findings:
- Less than half (40%) of companies that raised a Seed or Seed VC round in 2009-2010 raised a second round of funding.
- 225 (22%) of companies that raised a Seed in 2009-2010 exited through M&A or IPO within 6 rounds of funding (1 exited after the 6th round of funding, for a total of 226 companies)
- 9 companies (0.9%) that raised a Seed round in 2009-2010 reached a value of $1B+ (either via exit or funding round) including Instagram, Uber, and Slack.
- 77% of companies are either dead, the walking dead (bad outcomes), or became self-sustaining (a potentially good outcome for the company but probably not good for their investors). It is hard to know the exact breakdown for these companies as funding announcements get a significant amount of fanfare but cash flow positivity or profitability do not. Also, death of companies generally happens quietly in the middle of the night (although increasingly, startups are willing to share their failure post-mortems).
Looking at the breakdown by round, there are some more interesting findings:
- The median Seed size disclosed was $500K for companies that raised their Seed in 2009-2010
- 56% of companies that raise a follow-on round after their Seed are then able to raise a second follow-on round after that. In other words, it’s easier to raise a second post-Seed financing than the first post-Seed financing (as noted, only 40% of companies are able to raise a post-Seed round). However, as companies move into the middle and late stages, the proportion of companies that manage to raise follow-on capital decreases. For the 3rd follow-on round after Seed the percentage drops to 39%, and then to 38% for the 4th and so on.
- In the later follow-on rounds, the gap between the average amount raised and median amount raised becomes much higher, indicating the presence of mega-rounds
For entrepreneurs who’ve raised multiple rounds of financing or venture capital investors making the decision to invest in companies, how does the funnel above parallel your experiences? Look forward to your comments below.
All the underlying data for this venture capital funnel analysis comes from CB Insights venture capital database. Sign up below.