As funding rounds grow larger, fewer startups are able to raise money

The rise of mega-funds has increased the overall amount of funding available to startups, but decreased the number of startups that actually raise money.


November 13, 2018

Venture capital mega-funds have supercharged startup fundraising all the way down to the seed: Since 2013, the average seed round of funding has grown from $550k to more than $2m.

But, as the size of rounds has increased, The Wall Street Journal writes, the number of companies receiving that funding has decreased by more than 40%.

The trickle down of the mega-round 

Large VC investments have paid off over the past few years, and successful investors adopted the “bigger is better” mentality (SoftBank’s $92B Vision Fund invests a minimum of $100m).

As big VCs went bigger, the number of smaller VCs multiplied, driving up the size of early rounds as well: The percentage of Series A rounds larger than $50m increased by 721% between 2008 and 2017.

With seed rounds getting larger, some investors have begun investing in ‘pre-seed’ rounds to get in even earlier.

More money… in fewer wallets

Y-Combinator alums are typically valued between $6m and $12m and have no trouble raising money: Companies that haven’t even launched yet often raise $40m or more.  

But, when a few winners take such big slices of the pie, everyone else goes hungry. The amount of money invested in Series A rounds doubled between 2012 and 2017 from $5.7B to $12.7B, but the number of recipients decreased (from 1,192 to 1,165). 

As big investors raise capital for next year’s mega-funds, it’s likely that funding rounds will continue increasing across the alphabet.

Daily briefings, straight to your inbox

Business and tech news in 5 minutes or less

Join over 1 million people who read The Hustle

Psst

How'd Bezos build a billion dollar empire?

In 1994, Jeff Bezos discovered a shocking stat: Internet usage grew 2,300% per year.

Data shows where markets are headed.

And that’s why we built Trends — to show you up-and-coming market opportunities about to explode. Interested?

Join us, it's free.

Look, you came to this site because you saw something cool. But here’s the deal. This site is actually a daily email that covers the important news in business, tech, and culture.

So, if you like what you’re reading, give the email a try.