For startups in times like these, Series A is a good place to be.
At this stage, a company is established, with a solid track record, yet young enough so its biggest growth is still ahead. That’s a sweet spot for venture investors, with startups raising a Series A round this year generally enjoying more success than later-stage companies.
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In line with overall funding trends, Series A funding worldwide went up significantly in 2021 — by more than 100% — and then declined in 2022 by 23%. Still, the decline at Series A was less dramatic than the drop in Series B and later funding rounds. Series B fundings have declined 30% year over year in 2022, while Series C and later funding has fallen 45%.
But startups can’t just stop fundraising at Series A — there’s a whole alphabet of rounds to come. If you are a startup raising at Series A in 2022, the outlook for raising has not weakened significantly by size of fundings. However, given the dropoff after Series A, startups might get stuck unless Series B-and-beyond fundings pick up in the latter half of 2023.
A deep dive into Series A funding also reveals distinct trends in different parts of the world. Back in 2021, the U.S. funding market increased by the largest share compared to other leading countries for Series A funding. But it then fell the most in 2022, based on an analysis of Crunchbase data.
Annual funding at Series A
Global Series A funding peaked in 2021, when more than $90 billion was invested in over 5,000 companies, Crunchbase data shows. Series A funding this year is down, however, with about $70 billion going to roughly 4,000 companies as of Dec. 11.
Downturn in H2
The pullback at Series A became apparent in the second half of 2022. Given the decline is only two quarters in, we expect this slower funding environment to carry on into 2023.
U.S. vs. rest of the world
In 2021, dollar amounts at Series A in the U.S. grew faster than in other leading regions, jumping 125%. But after that, the U.S. market also pulled back more sharply in 2022 in contrast to other parts of the globe with a 33% decline in Series A investment.
While the U.S. did not dominate as a proportion of deal counts compared to the rest of the world, the trends are similar. U.S. deal counts grew at a greater rate in 2021 year over year at Series A and declined at a greater rate in 2022 compared to the rest of the world.
Series A funding amounts in the U.S. in 2021 were double the invested dollars in Asia and more than 3x that of Europe, according to an analysis of Crunchbase data.
But this year, the U.S. — while still the largest market — declined by the amount invested relative to other regions. Still, overall U.S. Series A funding remains one-third larger than Asia, and more than double European investments in 2022.
A decline in Series A funding in China reduced the overall funding to Asia in 2020. But Series A funding to the continent grew again in 2021 and maintained that growth, by and large, into 2022.
European Series A funding grew in 2021 and has not suffered much of a decline in 2022.
When looking at deal counts, the U.S. market trends are inline with amounts: the continent’s deals grew at a greater rate in 2021 than Asia and Europe, and declined at a greater rate as well in 2022.
Median and average Series A
Despite the slowing venture environment, the global median Series A round kept growing in 2022. The average size of Series A rounds has dropped, however, but is still ahead of 2020.
Back in 2013, the median Series A round was $3 million and the average was $6 million. This year, Series A averages are nearly $20 million and medians are above $10 million. In 2020, an average Series A was around $14 million and the median was $7.5 million.1
Was Series A in the U.S overheated in 2021 compared to the rest of the world when it comes to funding increases?
We are still early in the pullback, and the earlier funding stages — namely seed and Series A — have not come down as precipitously as Series B and beyond.
However, with the decline in late-stage funding — by as much as 63% in the third quarter of 2022 when compared to a year earlier — the bigger question is whether companies that raised larger rounds at Series A will be able to raise follow-on funding at Series B and later.
With a strong pipeline of Series A-funded companies and a retraction of Series B-plus rounds, we foresee fewer companies proceeding to the next stage.
We do expect as the longer tail of investments are added for 2022, the medians will settle down a bit, but the data suggest that Series A fundings continue at these new levels.↩
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