Seed Rounds Got Larger Through The Downturn. Why Is That?

Editor’s note: This is the first in a two-part series looking at the evolution of seed funding since the 2021 market peak. Part 2, which will look at the fallout from seed startups’ slower progression to Series A, will publish next week.

Seed funding was the most resilient venture investment stage through the startup funding downturn, an analysis of Crunchbase data shows. In fact, while one might expect round sizes to get smaller in a tighter funding environment, larger seed rounds have increased since 2021, underscoring the expansion of seed as an investment stage.

Investors lean toward seed

As venture funding declined following the 2021 market peak, investors leaned toward seed. That makes sense given that the seed stage tends to be the least risky stage for venture investors in a market reset, as commitments are smaller, a newer wave of companies are funded, and the issue of exits remains further out. By the time a current cohort of seed companies matures, the funding cycle could be very different.

But, if we take a closer look at seed funding, it’s evident there has been some shape-shifting in recent years: Seed funding deals, on average, are getting larger — but also harder to come by.

Shape of seed

In 2024, seed funding reached $13.2 billion — down a third, or around $5.7 billion, from the 2022 peak of $19 billion.

While that decline is not insignificant, contrast it with early- and late-stage funding in the U.S., which fell around 50% from the market peak year of 2021.

Since 2022, rounds of more than $5 million have become a larger share of seed dollars, Crunchbase data shows.

When analyzed by range, rounds below $1 million totaled $700 million to $1 billion per year between 2020 and 2024 — and accounted for less than 10% of seed amounts, but north of 40% of deals.

U.S. seed rounds sized between $1 million and $5 million grew in the peak years of 2021 and 2022. Deals at this size slid back to closer to 2020 levels for both counts and amounts in 2023 and 2024.

However, in recent years there has been a noticeable shift — though still a small proportion of deals — to larger seed funding rounds.

In 2021, the percentage of seed funding going to larger seed rounds — those above $5 million — picked up, and since 2022 those larger seed rounds have received more investment than seed rounds of $5 million or less.

Those larger seed rounds, which peaked in 2022, did not slow as much compared to smaller seed rounds in the downturn years, remaining elevated in 2023 and 2024 when compared to 2020 and earlier.

Scattering of seeds

Since the beginning of institutional seed investment in 2005, the asset class has grown from a select few seed-stage firms writing small checks, to thousands of seed funds that back fledgling startups. Early-stage funds and multistage funds also began investing at seed, with some writing larger checks at this stage. With that growth, the category of seed investment also became elastic and grew to include pre-seed, seed and pre-Series A.

Tougher on founders

As the bar to raising a Series A or Series B funding got harder in the downturn, some founders stayed at the seed stage longer and raised follow-on seed rounds. As a result, seed has expanded as a funding stage.

“There’s a lot of variance in what I see in seed rounds,” said Michael Cardamone, CEO of New York-based Forum Ventures, an active seed investor, in a recent interview. “There’s still some seed investors where I scratch my head at the valuations they’re paying, when I know the A round is going to get done at less than 2x what they’re paying for the seed round — if everything goes perfectly well,” he said. “And then you see a lot that are really disciplined on price. So the variance of valuations we see at seed are pretty high. And I think everyone’s handling it differently.”

Meanwhile, the bar has gotten higher for companies to raise seed funding in a tighter market. Most founders have to get significant traction to be able to raise seed funding, said Cardamone. “A true institutional $2.5 million to $3 million seed round is harder in this market,” he said.

Emerging managers are also finding it hard to raise funds to invest. “They’re trying to make their existing funds last longer so they don’t have to go back out to market,” Cardamone said. “They can write a smaller check, but get the same ownership in a pre-seed round.”

During a market reset, however, new opportunities arise.

“Valuations are coming down, more talent is available in the market, and it’s easier to recruit,” said Cardamone. “A lot of these companies at seed and Series A are going to scale into what will likely be the next bull market.”

Methodology

For this analysis we only include seed and pre-seed funding rounds for U.S.-based companies. Due to data lags, seed funding counts will increase over time for 2024 relative to prior years.