In the last quarter of 2016, seedstagevc raised a total of $2.8 billion in Series B funding. This raised expectations for VCs and entrepreneurs, who anticipated seeing even more growth in the coming years. However, there is a bit of an asterisk to this story. It turns out that many Seed rounds were actually lower- Value-Added (VAA) rounds than they had initially been led to believe. In fact, according to data from PitchBook, Seed rounds with a VAA value below $1 million were down 50% from the same period in 2015. This was due to two main factors: first, there was a slowdown in investment into early stage businesses; and second, VCs were looking for more high-growth businesses than they would find in more traditional Seed rounds.
The State of Seed Round Numbers
While it is true that the number of Seed rounds has slowed in recent years, this is not to say that there are not a lot of high-growth products being raised. In fact, according to PitchBook, the average value of a Seed round in Q4 2016 was $4.5 million. This shows just how active and successful investors are looking for startups today. The problem is that VCs are looking for a certain type of startup and they’re not finding as many of them as they had initially anticipated.
The Slowdown in Investment into Early Stage Businesses
VCs are constantly looking for new opportunities to invest in startups. They want to see more high-growth businesses, and this is often what they find in Seed rounds. In order to get these businesses, VCs need to invest a lot of money. However, the recent slowdown has made it difficult for them to invest in early stage businesses. This has had a negative impact on the overall growth of the startup industry.
VCs Are Searching for More High-growth Businesses than They Do in More Traditional Seed Rounds
VCs are searching for more high-growth businesses than they do in more traditional Seed rounds. This is due to a slowdown in investment into early stage businesses and the need for higher-growth businesses. VCs are looking for companies with an opportunity to grow at a rapid rate and have the potential to be worth billions within five years.
How VCs lowered Revenue Expectations for Seed in the Quarter-Year Update
VCs lowered their revenue expectations for Seed in the quarter-year update based on the data mentioned above. They were looking for businesses with a higher value-added, or VAA, than $1 million. This was due to a slowdown in investment into early stage businesses and the general preference for high-growth startups. In fact, according to PitchBook, only 22% of Seed rounds with a VAA value below $1 million were raised in Q4 of 2016. This was a decrease from the 35% seen in 2015, but still higher than the 20% seen in 2014.