228. Seed Crust: Seed To Series A Graduation Rates

Startups getting from Seed to Series A in two years has dropped by a third. It's creating a "messy middle in the earliest parts of the market," according to Peter Walker.

Seed Crust: State of the Seed Market 1H 2024
Most startups at Seed are circling around, unable to break through to Series A. We're calling this the Seed Crust. I recently released a market report covering: 

• The market forces behind this
• What it will take for this to change
• The paths forward for founders stuck

Download the report and watch the event here: https://vcminute.substack.com/p/seed-crust 

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Transcript

Rich: 0:01

You have more money at seed than ever before, and this has caused Series A to raise the bar. Peter, this is your graduation rate chart, what's your take on this one?

Peter Walker: 0:10

Graduation rate in this case simply means we did an analysis of the percentage of companies that raised the priced seed round that ended up getting to Series A within two years of their seed. If you raised your seed round in Q2 of 2020, one third, more than a third of those companies got to an A within two years. If you did the same thing in Q1 2022, only 12% have gotten to the A in two years. Obviously, there will be people that get to A after the 2 year mark, but it is illustrative of the slowdown from these vintages. There's just a consistent cross-industry slowdown in the percentage of companies that can break through from seed. And then what are they doing instead? Bridges, extensions, convertible notes, crowdsourcing sometimes. There's just a agglomeration of so many different ways to get money into a business. But those are not the same thing as moving along the venture stages and actually achieving the metrics that you need to get to A. Rich, I think the point that you've made really well here is, it's not like those companies just go away. They're crowding the market. They're crowding attention from people who are looking to invest into A's, et cetera. And then they have to make a choice of, do we try to keep going? Do we try to shut down? Do we try to sell ourselves? And those decisions are made over a weird timeline. So it's this messy middle in the earliest part of the market.