Venture

Series B Crunch Hits U.S. Startups, While Series As Decline Globally

Early-stage funding posted a slowdown in the third quarter, and it wasn’t immediately clear why.

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A closer look, however, reveals that for U.S. startups the chief reason appears to be a decline in Series B funding rounds. Meanwhile, globally, the early-stage slowdown was caused by a pullback in Series A financings.

Let’s unpack the numbers below and speculate about what the data could mean for the broader startup economy.

U.S. Early Stage Slowdown

We’ll start with U.S. early-stage startup investment, which saw a decline of 18 percent in reported funding in Q3 of 2019, compared to Q2.1 The drop came as overall funding remained flat-to-up at other funding stages.

Early-stage rounds consist of Series A and Series B rounds. And while Series A reported investment totals held up at similar levels in both Q3 and Q2 of this year domestically, the same cannot be said for Series B.

The drop is illustrated in the chart below:

The broad decline in Series B financings does not appear strongly correlated with any major industry. The largest sectors for funding — biotech, enterprise software, fintech, autonomous vehicles, etc. — all saw big influxes of dollars. So, it’s not that investor enthusiasm for a  particular big industry is falling apart; rather, everything’s down some at Series B.

What are some possible reasons for a Series B pullback? At this point we’re speculating, but we can throw out a few possibilities. One is that the trend of ever-larger Series A rounds means companies are taking longer to burn through them. Or, it could just be a quarterly fluke. Or, it’s also plausible that investors have gotten increasingly wary about writing checks at this particular juncture in a startup’s development.

If our final guess is correct, the implications are significant. If we visualize where Series B lands in a company’s development, it’s a bit like the final on-ramp to a highway. Companies are expected at that point to have proven technology, early indications of market demand, and for tech startups, at least some revenue (for biotech, clear progress toward clinical trials.) The next stop is Series C, where the scaling accelerates.

If we continue with our roadway analogy, drivers avoid the on-ramp if they know the highway is backed up and don’t need to get on it right away. Perhaps that’s what’s happening in the startup sphere: Mid-stage companies and their backers are waiting for the clog of unicorns to exit, fail, or stop consuming monstrous sums of capital and make way for some newcomers.

Global Early Stage Slowdown

The early-stage slowdown isn’t just a U.S. phenomenon. Globally, reported early-stage investment totals were down just over 9 percent in Q3 of 2019, compared to Q2.

However, in the global totals, it was Series A rounds that saw the larger contraction while Series B held up better.

This is illustrated in the chart below:

A Blip Or A Trend?

For now, it’s too early to call whether the drop in early stage funding totals should be taken as a warning sign for the startup space. In the U.S. in particular, there’s no shortage of capital for startups, and VC firms have been adding more to their coffers. In a single day this week, for instance, Crunchbase reported on three early stage VCs closing new funds.

We’ll look to the Q4 numbers to see if the early stage crunch is just a one-quarter blip or the beginning of a broader pullback.

Photo via iStock


  1. In our regular quarterly reports, Crunchbase relies on projected data rather than reported rounds, as investments are commonly disclosed weeks or even months after they close. Given this, it’s likely some of the decline is due to reporting delays. Using projected data, the quarter-over-quarter drop in U.S. early stage funding for Q3 is estimated to be around 14 percent.

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