Who's writing the most checks to startups at the earliest stages? Accelerator programs like Plug and Play Tech Center and Y Combinator, along with venture funds like Alumni Ventures, Gaingels and 10X Ventures.
All of those funders have invested in at least 200 U.S. seed-stage deals since 2021, according to data provided to American Inno from venture capital data firm Pitchbook. The data shows 15 investors have placed at least 100 bets on U.S. seed-stage startups in the last two and a half years.
The list give a glimpse into the most prolific seed investors, an area of startup investing that, despite the headwinds felt by the venture capital sector as a whole, has proved somewhat resilient.
Even as much of the VC industry has pulled back from the highs of 2021, valuations for seed-stage startups are on the rise. The median pre-money valuation for seed-stage deals has reached $10.9 million this year, up from $10.5 million last year and well above a decade prior, in 2013, when seed deals saw a median valuation of $4 million, according to Pitchbook.
The rising seed valuations come as startup valuations are down across the board in other stages. Valuations have been hit particularly hard at Series C and Series D rounds, falling 23% and 59%, respectively, since 2021, according to Reuters.
Even as seed-deal valuations remain a relative bright spot in the VC landscape, fewer deals are getting done. There were 1,451 estimated seed deals in the second quarter of 2023, according to Pitchbook, down about 25% from the same quarter last year. The total amount of capital invested in U.S. startups at the seed stage was $2.8 billion in Q2, down more than 27% from the previous quarter and a "significant drop from the dealmaking fervor in 2021 and early 2022," Pitchbook said in its latest quarterly VC report.
Fewer deals at higher valuations point to a shift to quality over quantity, as investors have "now become highly selective when evaluating investment opportunities," spending more time on due diligence compared to when the market was frothier in 2021, Pitchbook noted. Many investors also are delaying their fundraising process to 2024, Pitchbook said.
But that doesn't mean large seed funds aren't still being raised. Sequoia raised a $195 million seed fund in January. Pear VC raised more than $400 million for a new seed fund in May. Distributed Ventures of Chicago raised a $100 million debut fund in July to invest in seed and Series A startups. CincyTech, a seed investor in Cincinnati, is raising up to $100 million for its new fund.
While quality seed-stage startups are finding funding, it's now "increasingly difficult for mediocre businesses to raise what would have been a normal seed round in 2021," Pitchbook said. And without access to those early checks, Pitchbook notes we could see a "growing number" of those startups closing their doors in the back half of 2023.
