Part
01
of one
Part
01
What percent of startups that received a seed round from serious angels or VCs go on to receive a Series A funding in U.S.?
Hello! Thanks for your question about the percentage of seed-stage startups in the United States that move on to raise a Series A round. I understand you are interested in startups that have received seed funding from serious angels or VCs.
The short version is that around 30% to 35% of seed-funded startups in the United States receive Series A funding. I did not see any published analysis that is specific to seed investments by reputable or serious investors, but the latest article written on the topic says 31.7% of seed-funded startups go on to raise a Series A. Also, a study of VC-backed seed investments says the Seed-to-Series A success rate is 35%.
No official definitions exist for Seed and Series A rounds, but it appears the amount raised in a Seed stage is generally up to $2 million or $3 million only while that in a Series A round can reach around $15 million. Investor reputation seems to play a factor too, as $2 million to $4 million from small seed funds or high net worth individuals is still considered Seed round while $3 million to $5 million from well-known seed funds or a VC is regarded as Series A already.
Below you will find further details on this.
METHODOLOGY
To answer your question about the percentage or rate, I searched extensively among recently published content. I observed several articles citing either Mattermark, CB Insights, or Tom Tunguz as reference, so I looked for the exact articles these three wrote on the topic. You may see below the relevant findings I have gathered from their analyses.
As for the definition of Seed and Series A rounds, I first checked if there is a standard definition. Seeing that there is no official definition, I expanded my search to older sources to see how definitions have changed. I also checked what actual investors had to say about delineating the two rounds.
SEED-TO-SERIES A SUCCESS RATE
My search turned up the following Seed-to-Series A success rates:
1. According to a September 2016 Mattermark article, 31.7% of seed-stage startups will move on to raise a Series A.
This percentage is based on Mattermark's analysis of "2,011 US-based software companies that raised Seed rounds between January 1, 2009 and December 31, 2012." Mattermark decided to use this time period because "it is long enough for the constituent companies to have set their own trajectory and close enough to today that the findings are actionable for founders."
The percentage mentioned above is the average across the four-year time period, but the yearly Seed-to-Series A graduation or matriculation rate is shown below.
2009 - 32%
2010 - 39.9%
2011 - 31.8%
2012 - 28.1%
2. A June 2015 Pymnts.com article says that, according to CB Insights, "61 percent of seed-funded companies won't be able to cross the gulf to Series A." This means 39% will be able to raise a Series A round.
3. Below is how the success rate varies by amount of angel and seed financing and by seed vintage. I estimated the percentages below from the chart presented in an October 2016 Mattermark article.
2004-2011 Seed Vintages
-----------------------------
$25K to $500K - 20%
$500K to $1M - 41%
$1M to $1.5M - 44%
$1.5M to $2M - 60%
$2M to $2.5M - 62%
$2.5M to $3M - 49%
$3M to $3.5M - 31%
$3.5M to $4M - 25%
2012-2014 Seed Vintages
----------------------------
$25K to $500K - 8%
$500K to $1M - 24%
$1M to $1.5M - 33%
$1.5M to $2M - 38%
$2M to $2.5M - 38%
$2.5M to $3M - 40%
$3M to $3.5M - 47%
$3.5M to $4M - 46%
These rates are based on Mattermark's study of "4,400 US-based companies that raised pre-Series A funding (i.e. and Angel or Seed round) between 2004 and the end of 2014." Only companies with at least $25,000 in pre-Series A funding were included in the study and capital-intensive industries were excluded.
Between the two seed vintages, Pre-Series A to Series A success rates were higher for those startups that raised pre-Series A funding between 2004 and 2011.
4. In a February 2014 article, Tomasz Tunguz, a venture capitalist at Redpoint, wrote about the results of his study of 917 companies over the previous 14 years. (It was not specified in the article, however, if all companies were US-based.) Using Crunchbase data, he was able to determine the following seed-to-A success rates by year of seed investment.
2006 - 45.1%
2007 - 35.1%
2008 - 29.4%
2009 - 30.8%
2010 - 30.6%
2011 - 20.6%
2012 - 17.1%
2013 - 6.6%
He found the average across years to be 27%.
5. In a July 2015 article, CB Insights talked about the 'signaling risk' that comes with receiving seed money from a well known VC firm (i.e. smart money). Based on its study of VC-backed seed investments from 2008 to June 2013, the overall Seed to Series A follow-on rate is 35%. If a 'smart money' VC is involved in the Seed, the rate is higher at 51%. If a 'smart money' VC does not follow through after investing in Seed, the rate is lower at 27%.
6. According to a September 2015 Mattermark article, the yearly Seed to A graduation rate from 2008 to 2015 is as follows while the average is 33%. Data for later cohorts (i.e., 2013 onwards) are not yet complete, as some startups in these groups may not have raised Series A yet.
2008 - 22%
2009 - 45%
2010 - 34%
2011 - 33%
2012 - 30%
2013 - 33%
2014 - 15%
2015 - 6%
These percentages were based on an analysis of U.S. startups that have raised a seed round. AngelList, Crunchbase, and Mattermark Research were cited as sources.
DEFINITION OF SEED AND SERIES A ROUNDS
Funding data come from information disclosed by startups or investors themselves and they are recorded by companies such as Crunchbase, Mattermark, AngelList, and CB Insights. Since there are no hard and fast rules about how to label a funding round, it is likely that there are some inaccuracies or inconsistencies in the data used in the analyses above.
A number of the authors in the sources above did warn about possible inaccuracies. For example, Jason Rowley of Mattermark warned about possible errors of omission or incorrect labeling in data but assured sample was large enough that these errors should not have any substantial effect on results. In addition, Tomasz Tunguz, in his article, described the data he used as "noisy".
In my search for definitions, I came across the following guidelines:
1. Entrepreneur and angel investor Jason Calacanis defined rounds by the function or purpose of money being raised. According to him, the purposes of the different funding rounds have evolved over time. Whereas, in 2004, the purposes of the seed round and A round were to build a prototype and then to launch the product, respectively, in 2015, they have changed to getting product traction and then scaling the product.
"It is less about actual money and more about structure of your Cap Table. If you have raised $2–4 million from a bunch of high-net-worth individuals I simply don’t see it as an A-round. If you raised $2 million from two small seed funds I probably don’t either (although in the past I would have). But if you raised $3–5 million from well-known seed funds or from a VC and you’re asking for $8–10 million in your next round … that next round is a B-round no matter what we collectively decide to call it when we VCs fund you."
"At a basic level, the more you've raised, the more traction and proof of viability investors expect a company to demonstrate, regardless of what they've internally dubbed their most recent funding round. For example, Andreessen points to $3 million raised (in total) as the cutoff for being considered a pre-series A startup. Anything more than that and Andreessen Horowitz and most other top firms will evaluate your company based on Series B metrics for your next round."
4. An October 2015 Investopedia article, on the other hand, says that the amount raised in the seed stage is typically in the $500,000 to $2 million range and is used for market research support and development work. Series A rounds raise about $2 million to $15 million, which, typically, will be used for product and user base optimization and scaling.
CONCLUSION
A number of articles provided varying percentages, but based on latest publicly available information, 31.7% of seed-funded startups in the United States will go on to raise a Series A round. An analysis of VC-backed investments, on the other hand, showed a 35% success rate. There is no standard definition of Seed and Series A rounds, but it appears a maximum of $2 million or $3 million in total amount raised is expected in a pre-Series A round and raising over $3 million from a VC is already considered Series A.
Thanks for using Wonder! Please let us know if we can help with anything else!