Increasing Seed Valuations Making Series A Rounds Difficult

October 18, 2013 08:55 by Clayton Reeves in Capital Markets, Economy, Financing, M&A, Private Equity, Venture Capital  //  Tags: ,   //   Comments (0)

As reported by Pitchbook, seed valuations have increased 62.5% from 2009 through the first three quarters of 2013 for a cumulative annual growth rate of 13.8%. Meanwhile, Series A valuations are increasing, but at a slower rate, from $6.8 million in 2009 to $8.9 million. This 30.8% growth represents an annualized rate of 10.3%. Inflated seed-stage valuations may be having an effect on a startup's ability to raise funding in the Series A round, as seed investors want to see appreciation in their investment, while Series A investors believe the seed valuation was too high.


Source: Pitchbook

As seed-stage investments increase, companies are finding it more difficult to raise Series A financing.  This is at least partly due to a shift in VC investment philosophy, which has seen the share of seed-stage investments grow as a proportion of total VC investments over the last three years.  VC firms are trying to pick out winners earlier, and get them for a reasonable price.  The competitive bidding, however, is causing those valuations to increase.  It will be interesting to see how this plays out over the next several years, and if the Series A crunch will continue.

Read the entire article here.

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