When we talk inflation, it’s usually everyday items that garner the most attention. Think a fill-up at the gas station, a bag of groceries, or a new pair of sneakers.
But in the much nichier world of startup financing, price inflation also persists.
Take the typical American early-stage funding round. For 2020, the median Series A for an American startup was around $10 million. In 2021, it was $13 million, per Crunchbase data1.
If we put that in terms of inflation, the year-over-year inflation rate for these round sizes was a whopping 30 percent. That far outpaces consumer goods and services categories such as food, electricity and vehicles.
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What’s more, the rise in median round size is far higher than in recent past years. For 2017 through 2020, Crunchbase data shows that the median Series A round grew by about $1 million each year. We chart it out below:
A long upward climb, followed by a big jump
Looking at the past five years, it’s been pretty bullish the whole time for median Series A growth. This isn’t surprising, considering that venture capital investment overall has been on an upward trend.
But looking at the trendlines, 2021 is an outlier. While median Series A round size was up in the prior four years, the gains were in the 10 percent to 15 percent range. For 2021, year-over-year gains were roughly double those of years past.
It’s not just Series A where the median round size jumped by a lot.
If we look at inflation across stages, we see a similar trend. Median Series B is up 37.5 percent from 2020 to 2021, Crunchbase numbers show. Series C is up 33 percent for that period. And median Series D is up a staggering 92 percent. We lay out the numbers in the chart below:
By the way, average round sizes are also way up in 2021. We chart that out below:
The case for calling it inflation
There’s a case to be made against using the term inflation for startup round growth. In particular, one could argue that direct comparisons from year to year aren’t relevant as the cohort of companies getting funded is quite different.
We get it. Some things are directly comparable. A bushel of wheat or a troy ounce of gold is the same thing today as it was decades ago. An early-stage startup, not so much. One could posit that recently funded startups are of higher quality overall than those raising capital a few quarters or years ago.
But come on. Realistically, this argument only makes sense up to a point. Is there any innovation one could point to that would make the median 2021 Series A startup, across all industries, 30 percent more valuable than one funded a year ago?
Sure, you could call it value creation. But from our perspective, it looks a lot like old-fashioned inflation.
Illustration: Li-Anne Dias
The dataset we used only included rounds with a disclosed price.↩
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