Written By: Kelly Bryant
“What market trends are you seeing in early-stage funding given the current climate?”
If I had a dollar for every time I was asked this question in the past 90 days, I’d be a very rich woman!
Global data from Q2 was released recently via Crunchbase and I have good and bad news. If you’re gearing up to raise a seed round… you’ll want to read this.
Let’s start with the bad news. Funding as a whole is slowing down (I’m sure this is fairly obvious to anyone following the markets). To be specific, funding reached $120B at the end of Q2 which is the lowest amount recorded for a single quarter since Q1 of 2021.
Similarly, Series A and B fundings (round sizes of $3 – $15M) fell by 18% quarter on quarter and 9% year on year. Before everyone starts to worry, note that these changes are largely due to a drop in oversized rounds (which I could argue is a good thing) and less because there’s been a drop in the number of deals getting done.
Now onto the good news….
Seed funding (round sizes of $3M or less) grew 9% year over year. This means it’s the stage that’s been the least impacted by the markets (insert cheering emoji here)!
Why, you ask? There’s a number of reasons, but some experts say that it’s because seed funding is not tied to revenue (it’s more about the jockey than the horse) and that investors tend to feel brilliant businesses get born during recessions – think Airbnb and Uber.
To be fair, there was still a decline in seed capital deployed in Q2 of this year compared to Q2 of last, but that was to be expected given the crazy valuations and raise amounts we were all witnessing in 21. Overall, seed rounds are still in the clear – for now…
So what does all of this mean if you’re raising a seed round this year?
First of all, don’t panic. Recognize that not only are seed financings still closing, there’s growth compared to last year. That said, if you’re hoping to close a round by the end of 22, we highly recommend beginning the fundraising process while there’s still momentum. Above all else, focus on getting traction and building a great business because at the end of the day, the best companies will still get funded despite a downturn.
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