Bootstrapping vs. VC Funding, Brain Drain and Startup Relocation, Importance of CVC & More
Digesting Insights From the Data
👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
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Don't Raise a Small Seed Round: A Look at Startup Funding Strategies
A recent analysis by Carta of over 4,000 US software startups highlights a critical insight for founders: raising a small seed round may hinder your path to Series A. This comprehensive dataset reveals distinct trends based on the size of the initial funding round and its impact on subsequent financing success.
Graduation Rates by Round Size: Startups raising less than $2M (small rounds) consistently show lower success rates in reaching Series A within two years, regardless of the year. For instance, in 2021, only 12% of small seed rounds graduated to Series A compared to 28% of large seed rounds.
Yearly Trends: The probability of progressing to Series A has varied over the years, with a notable decline for seeds raised in early 2022. The highest success rates were seen in 2020, with large rounds achieving a 45% graduation rate.
Impact of Medium Rounds: Medium seed rounds ($2M-$5M) do not drastically differ from large rounds in terms of Series A success, suggesting diminishing returns on larger initial investments.
✈️ KEY TAKEAWAYS
For startups aiming to follow the traditional VC path, securing a medium to large seed round appears crucial for enhancing the likelihood of advancing to Series A within two years (at least in the current environment).
The State of the Global Startup Economy
The Global Startup Ecosystem Report (GSER) 2024, one of the most comprehensive annual global startup reports, provides crucial insights into the state of the startup economy. Entrepreneurs should consider it as a vital reference guide rather than reading it in its entirety.
Conflicting Trends in 2023: Despite global GDP growth and easing inflation, the tech winter persisted with exits and funding not recovering to pre-COVID levels.
Early-Stage Optimism: Series A funding fell by 46% in 2023, yet the average deal size increased in H2 2023, with improvements continuing into Q1 2024. Cleantech and Generative AI (GenAI) remained attractive to investors.
Impact of Large Exits: The slowdown in large exits ($50 million+) since Q1 2022 has locked in financial and human capital, affecting ecosystem growth. The annual value of large exits dropped 86% in 2022 and another 47% in 2023, but signs of improvement appeared in Q1 2024.
✈️ KEY TAKEAWAYS
The GSER 2024 highlights the resilience and adaptability of early-stage startups in challenging times, with Cleantech and GenAI leading the way. The report is an indispensable tool for entrepreneurs navigating the global startup landscape, providing a strategic overview and actionable insights.
Turned Down in the Downturn: Funding Gap Grows for Underrepresented Founders
Despite significant potential for outperformance, underrepresented founders faced increased challenges in 2023 due to tightened early-stage capital access and biases in the VC ecosystem (see our previous deep dive on the topic here). Below's a snapshot of the 2023 fundraising landscape according to Docsend’s recently published data: