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Analyzing the Series A Crunch

October 1st, 2013

Analyzing the Series A Crunch

It seems that no matter where you look these days, people are talking about a “Series A crunch” and debating whether or not it exists.  So is it real, or is it buzz?  We took CrunchBase’s publicly-available funding data and loaded it into DataHero to find out for ourselves.

Let’s start off by looking at investments by round.  Here is the percentage breakdown of deals by series for the past ten years:

Percentage of Deals by Round Type

With the exception of 2004, the percentage of Series A deals done in 2013 to-date is higher than previous years (32% of all funding so far, compared to 19%, 24%, 25% and 27% for 2009 through 2012).

What about Series A in absolute terms?  Looking at the total overall investments by year, we see that Series A investments overall have been fairly consistent for the past three years (from 2010 to 2012).  Fall is just starting and 2013 is looking strong and on track to have the highest total Series A investments ever (847 investments through Q3 2013 compared to 981 total Series A investments in 2012).

Total Series A Funding Amount

Total Series A Fundraising last 12 quarters

Of course, we need to look at deal size to make sure that we’re not just seeing an increase in the size of Series A investments.  It looks like this isn’t the case either: although the average deal size so far in 2013 is higher than in 2011 and 2012, it remains lower than the seven years prior.

 Average Series A Deal Size

So it looks like 2013 is gearing up to be a solid year for Series A investments.  We’re on track to have more Series A investments than ever before at a higher average size than in 2012.  So everything’s good, right?

Not quite…

A crunch (if one exists) is not about the availability of funds in absolute terms but, rather, the availability in relative terms: how challenging is it for a given startup to raise money?

For the past few years, it’s been increasingly easy to raise seed capital.  How easy?  Let’s look at the numbers.  Here is a graph of total angel investment over the last 10 years as well as the number of investments tagged as angel.

Total Number of Angel Investments

Total Amount ($) of Angel deals

As you can see, there is a noticeable spike in investment starting in 2010 and to 2012.  This is a good indication that there is more investment marked as angel, but even more interesting is the graph of the top angel investors.  By using AngelList, we pulled individuals (not seed funds) that had a large number of followers and investments.

Below is a graph of total number and total volume of angel investments by Peter Thiel, David Cohen, Chris Sacca, Mitch Kapor, and Max Levchin over the same period.  Wow!  As you can see, these seasoned angel investors entered more deals than usual in 2011 and invested heavily in 2011 and 2012.

 Top 5 Angels Number of Investments

Top 5 Angels Funding

Even though the Series A funding the past couple years has been slightly higher than usual, and this year looks to be on track to be the highest, the Series A Crunch is real due to the fact that angel investments saw such a spike in late 2011 and 2012.  This illustrates the importance of looking at absolute numbers instead of just percentages. Fewer companies are receiving funding as a percentage of companies who are vying for Series A rounds, but this is because the pool of companies that received seed funding grew so dramatically in 2012.

As we just hit the end of Q3, it’s impossible to draw any definitive conclusions just yet about Series A funding for 2013, but it is already looking like this will be a huge year in terms of absolute value for funds. However, the large number of companies who received seed funding means that some of those seeded companies will inevitably be left out in the cold. If you’re hoping to raise funding in the fall, hopefully you’ve got your game faces on because competition is heating up in the startup world for those Series A funds.

And if we’ve piqued your interest in mining the Crunchbase dataset for your own insights, sign up for DataHero, import the dataset and start digging!

By Jeff Zabel

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