7 ms·

The number of seed rounds in 2014 fell compared to 2013

87 points by dmor 12y ago

hnnewguy 12y ago
Interesting graph. The "bubble" goes parabolic right in 2009, as the financial system is awash in QE money, searching for yield. Almost textbook.
- gee_totes 12y ago
  QE has nothing to do with VC
  - deleted 12y ago
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  - kchoudhu 12y ago
    Yeah, cheap money never goes searching for yield.
  - cjensen 12y ago
    When demand increases for Apples, the price of Apples increases. When the price of Apples increases, the demand for Oranges increases. Fed demand for Investment Bonds increases the price of Investment Bonds. When the price of Investment Bonds increases, the demand for other investments increases. Textbook Econ 101, as the parent comment noted.
    - gee_totes 12y ago
      I would say you're comparing apples to oranges by conflating Investment Bonds (which I'm assuming you mean Treasury Bonds), but you've already set yourself up for the apples and oranges with your example. If you'll check the source article[0] that the Techcrunch graph was pulled from, you'll see that there is a negative correlation between the Treasury bond yield and the amount of money flowing into seed deals. According to your Textbook Econ 101, there should be a positive correlation between these two. But the data shows there is not. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see...
  - hnnewguy 12y ago
    >QE has nothing to do with VC Sure it does. Easy money is easy money. That goes for you and your mortgage at historically low rates, or VCs raising capital. When stimulus is occurring, it's interesting to see where it ends up. I'm not implying anything nefarious. In fact, I'd say it's working as intended (or at least expected).
    - gee_totes 12y ago
      To make sure we're talking about the same thing; the pink line in the second graph on the techcrunch article is what you're talking about when "the bubble goes parabolic". That pink line represents the number of seed deals completed, not the amount of money in the system. Unfortunately, I cannot download the original dataset that Mattermark is using, but using a dataset from Pricewaterhouse Coopers[1], and data from FRED[2], I have run some statistical analysis using R. My results are here: http://imgur.com/a/eFzs1 http://imgur.com/a/eFzs1 In short, the only statistical correlation I can find between QE and Seed capital is a negative one, which would contradict your original hypothesis. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see... [1]http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistoricTrend http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistor... [2]http://research.stlouisfed.org/fred2/graph/?id=MBST# http://research.stlouisfed.org/fred2/graph/?id=MBST#
      - hnnewguy 12y ago
        >My results are here Why would you compare quarterly values of seed money to a cumulative total (QE) and expect a correlation? They are completely different series. Try doing a running total for the seed money and the graph will look different. The first and third graphs don't make sense for this reason. The second graph is better, and you can see there is some correlation. Did you test for lags, or do you assume that QE money would flow instantly into the coffers of institutional investors? I applaud your effort, but there is more to this analysis than overlaying two graphs. You need to understand the data.
- nathanaldensr 12y ago
  A very good observation, and one that I've been making to my friends and family. Where else to put the money sloshing around in the system except technology and automation? It almost doesn't matter what the idea is, only that it "could be big." Many other industries are either already commoditized (manufacturing) or require too much money to enter (healthcare, anything regulated heavily by the government). Why not throw some money at a few guys who want to "change the world?"
k__ 12y ago
So bootstrappers are on the rise now?
- jacquesm 12y ago
  They never stopped. The number of bootstrappers dwarfs the number of funded companies, they tend to score lower but they score more frequently. They also don't get press unless they're acquired by some company. Lots of money changing hands (investment, blow-up, acquisition) is what gets you press.
- fivedogit 12y ago
  Yes and it's going mainstream. Starting a company is so cheap and fast now that it doesn't even take a team of 2 or 3 anymore. A single person can do it. There are so many benefits to solo-founding, it's not even funny. Without co-founders, there's no delay in getting started. There's no drama. The development cycle is fast and the code can be remarkably clean. Personally, I make changes to my production code all the time because the whole thing is in my head and I know what effect my changes will have. (And if I screw something up, I know how to fix it in minutes, not hours.) With a team, that's simply not possible. Investors are going to wake up to this reality soon and accelerators will trip over each other to claim to be the "accelerator of solo founders". Corollary to this, MBAs and other non-tech types are screwed in the years to come. Engineers won't need them anymore. 1. Make a product. 2. Get some baseline traction. 3. Join an accelerator or raise a seed round, if you need it. 4. Hire the founding team. 5. Profit.
  - jacquesm 12y ago
    One small problem: co-founders make you stronger. You are your own single point of failure. For many customers that makes you a no-go zone.
    - semperfaux 12y ago
      "Co-founders make you stronger" is a questionable generalization. Cofounders add a lot of things, both positive and negative, and as long as you and (each of) your cofounder(s) have vital skills/resources that are unique in the group, you now have multiple "single points of failure." Yes, cofounders can contribute bandwidth, skills, connections, and all sorts of other positive things. They can also contribute friction, disagreement, and various other negative things. It's not a cut and dry benefit.
Patrick_Devine 12y ago
We definitely found this out the hard way. We tried to raise $750K for a seed round and were repeatedly told that our tech/team were great but that we didn't have enough traction. It's kinda hard watching people go on about the "bubble" when you're just out there trying to scrap it out and find something that works.
- beat 12y ago
  I'll probably be looking for seed later this year, so this makes me sad and despondent. I can probably bootstrap to traction, but it's really hard.
  - hluska 12y ago
    Don't feel sad - this is just a set of numbers. While the big picture trend doesn't look very good, that graph still shows that hundreds of companies just like yours are closing deals. Keep the faith and keep working hard - fortunes are made during downturns...
- trevelyan 12y ago
  YC offers 20k+ for a few percent. Startup Chile is 40k with a co-investment of around 10k. That money is supposed to support the founders for a few months while they get the prototype out the door and build traction. In comparison, 750k is a metric ton of cash, and should be enough to support a founding team for several years. Not judging, but if you're positioning it as a seed round instead of Series A that may be part of the problem.
  - jacquesm 12y ago
    > In comparison, 750k is a metric ton of cash, and should be enough to support a founding team for several years. Until you start hiring. Then you can burn through that kind of money surprisingly fast. Talent is (rightly!) expensive. So unless your co-founders and you have all the skills you need to see your product out the door you could very well need multiple 100 Ks to get going. If you're doing anything hardware related or that needs certification or a hundred other things that you could spend your money on then you might find this is not as much as it seemed at first. Not all start-ups are making simple web apps or mobile apps. Doing a seed round for $300K is not much easier than $750K and will give you only half the return on your time invested. At least at 750K you'll still be looking at a relatively abbreviated process rather than a full blown DD (which would burn up too large a chunk of the investment to make sense).
jacquesm 12y ago
This plays right into YCs hands: seed money is harder to get, but YC is still open for business. And with the number of deals they fund the remainder of the seed world is left with what they (incorrectly) perceive as 'second choice', now that the path to YC is well known.
- fivedogit 12y ago
  This is true. I think what we saw was an accelerator bandwagon. It was truly a revolutionary mechanism in the VC world and everybody under the sun wanted in on the action... but there were too many and hardly any of them could replicate the same results as YC and TS. We knew some of them were going to die off and now they have. I fail to see how anybody but the "me too" accelerators lose with this trend (and they were losing already, obviously). Startup founders shouldn't have been taking money from them anyway, so the fact that they're dying off just saves naive founders from making at least this one mistake.
  - ewzimm 12y ago
    That's something worth remembering about reading graphs. When you're looking at the aggregate of a trend, it's worth asking what changes in that aggregate represent. Sometimes, growth means taking on dead weight. Sometimes recession means shedding it.
- deleted 12y ago
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eudoxus 12y ago
That first graph doesn't really show the bursting of a bubble. Yes, the number of rounds have gone down, but I think an important metric is the amount raised, which has only slightly decreased. This make it seems like there have been stricter requirements by seed investors before jumping in. Which to me sounds like not a bad thing. Ideally we'll get less Yo apps this way.
- jacquesm 12y ago
  If this just affected the Yo apps it would be great news but that does not seem to be the case.
- dlevine 12y ago
  The problem I see is that if fewer companies are being funded early-stage today, then there will be fewer companies around to get later-stage funding tomorrow. One of the reasons we have so many companies getting later stage funding right now is that there was so much seed funding a few years back. If early-stage funding is starting to dry up, that may be a sign of other things to follow...
staunch 12y ago
Most professional investors are sheep. The number and scale of opportunities in technology is growing incredibly and they're not all doubling down. It's been almost 10 years and no one has launched a credible competitor to YC. That's proof of how incredibly weak the industry is. Where investors are afraid, consumers aren't the least bit deterred. They don't talk of bubbles. They want cool new stuff that makes their live better and they're paying for it. The internet has reached critical mass, everyone is online and has a credit card. Which is why, in the near future, new technology will mostly come from companies that were funded by crowdfunding, not professional investors.
- rgbrenner 12y ago
  crowdfunding? really? Both crowdfunding and VCs fund a tiny portion of the total small businesses started. Did you see those charts? The scale is in hundreds. In the US alone there are millions of small businesses started each year. Sure, most of those aren't trying to change the world (haven't seen statistics on that)... but even if it's 0.5% and you exclude all the solo founders, it would still far out number crowdfunding and VCs by a large margin.
  - jsprogrammer 12y ago
    How are the millions funded?
    - yen223 12y ago
      Loans, savings, investments from friends and relatives, etc.
  - staunch 12y ago
    There are more Italian restaurants funded every year than there are technology startups as a whole. But if you take "startup" to mean "technology startup" you're talking about the same thing I am. And almost all of these startups were funded by VCs early on. Crowdfunding will replace VCs as it becomes possible for people to get equity in exchange for funding. Your average person is more than clever enough to invest $500 in Dropbox the day it launches as a video on Digg. Only a broken system stops them from being able to profit the way already rich investors do today. In the same way that Uber didn't replace taxis, crowdfunding will not replace VCs, it will surpass them. The crowd has far more money and are themselves the ultimate judge of what's good. http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfun... http://www.forbes.com/sites/geristengel/2014/03/26/equity-crowdfunding-site-targets-the-gigantic-untapped-consumer-market/ http://www.forbes.com/sites/geristengel/2014/03/26/equity-cr...
abalone 12y ago
Except: "Bear in mind that the total dollar amount of money flowing into seed deals barely declined". That is a questionable definition of "popping" a bubble. The article does go on to admit that it's just selectively illustrating the number of deals, not the amount invested in seed deals, which is actually still the same in aggregate, and then wishy-washily says it's up to you to interpret this yourself etc. But since most people don't read too far past the dramatic chart and the headline, I think it would be fair to say this smacks of click-baity sensationalism.
- deleted 12y ago
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- jsprogrammer 12y ago
  Rags need to produce articles. Exhibit 1.
- deleted 12y ago
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- soup10 12y ago
  First of all. The word click-bait needs to die. It implies wrongdoing by the author, but all you are really saying is the headline grabbed your attention and you didn't like the content. Second, the aggregate chart shows the total amount invested went from 9 years of growth to it's first decline. Look at Q3 2014 vs Q3 2013 more than a 50% decline in seed deals! With numbers like that it's hard not to interpret it as foreshadowing continued declined.
  - abalone 12y ago
    Nope. It shows the total number of deals, not amount invested. You fell victim to precisely the problem I mentioned.
- 7Figures2Commas 12y ago
  That should actually be a red flag about the data. When you see a rapid, precipitous decline in deals but amounts don't change, you have to look at the data. How do you get a rapid, precipitous decline in deals without an expected decrease in dollars? Use a data source that a) is liable to miss deals[1] and b) will classify multi-million dollar rounds involving institutional/venture investors as "seed"[2][3]. [1] Per my other comment I work with a startup that raised a public seed round in Q4 that is not listed in Crunchbase. [2] https://www.crunchbase.com/organization/skydio https://www.crunchbase.com/organization/skydio [3] https://www.crunchbase.com/organization/north-technologies https://www.crunchbase.com/organization/north-technologies
nedwin 12y ago
I totally misread the graphs. Sorry Danielle!
- lstamour 12y ago
  Did I see the same chart you did? I went back and looked, all I saw was "Q1" and "Q3" labels while the data showed all four quarters, but only half were labelled. It /was/ missing a Q4 though at the end.
  - dmor 12y ago
    Creator of the graphs and author of the original post (here: https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see...) All the quarters from Q1 2005 through Q4 2014 were plotted. The axis labels do not show all of them due to space constraints. Apologies that this was confusing, I will make sure to add all the tick marks and labels in the future.
    - lstamour 12y ago
      I don't think you need all, I mean, there were space constraints. This is why a bar graph can be clearer than a line graph for discrete data though. They may be boring, but they are often effective at communication. :-) Oh and it's helpful to label both ends of the graph, from Q1 2005 to Q4 2014, then fill in what labels you can in the middle. If you'd picked random Qs or even just every year, perhaps to shade the backgrounds of each year, that might have made for a more understandable graph. Our fault for misunderstanding it in the first place, of course... This is also why some places link to tables of data used in the graph. You could click to view the table if you had any questions about what you're seeing in the graph. Stephen Few's an accessible read on this subject.
      - dmor 12y ago
        Cool, this is great feedback. I'll check out Stephen Few's work too -- thanks for reading and caring!
user02 12y ago
"The Seed Bubble Has Popped" has popped.
kirillzubovsky 12y ago
Seed deals decline while total $ spent stays still? Good news IMO. Means VCs are putting more of their weight into co's they do fund. #win
birken 12y ago
> And of course there is another possibly — maybe hundreds of startups collectively decided to stop announcing their funding rounds? There is also a much simpler explanation... there is a lag in when seed rounds happen and when they are announced. The fact that the most recent data point stands out as a massive outlier is a strong indication of this possibility. Simple to check as well, we can look at this same plot in 6 months with the back filled data and see if the conclusion is the same. Jumping to conclusions for the sake of a headline is fine, that is Techcrunch's job after all. But for those of you that do data analysis for your own companies, be careful when jumping to conclusions. If you see a massive outlier on your graph like this, more often than not it is a data collection/sampling issue than a giant change in the world. And of course if you do think it is a giant change in the world, extraordinary claims require extraordinary evidence. So there shouldn't be a caveat, which if true, completely disprove the whole conclusion.
- 7Figures2Commas 12y ago
  You also need to consider the source of the data. From what I understand, much of Mattermark's data comes from Crunchbase, and the categories in the Mattermark chart[1] mirror categories on Crunchbase. Crunchbase is by no means a comprehensive source of all deals. As an example, I work with a company that raised a seed round in Q4 2014. Crunchbase does not have this funding despite the fact that it's public. For the deals that Crunchbase does have, the categorization can be very spotty. For instance, you can find $2+ million party rounds with institutional investors categorized as "Seed" while there are sub $1 million rounds categorized as "Venture" or even "Series A." There are also oddball categories like "Debt Financing" and "Convertible Note" which in some cases appear to be the same thing. In my mind this is almost certainly a case of garbage in, garbage out. [1] https://tctechcrunch2011.files.wordpress.com/2015/01/screen-shot-2015-01-16-at-2-35-10-pm.png?w=680&h=514 https://tctechcrunch2011.files.wordpress.com/2015/01/screen-...
sharkweek 12y ago
Here's a big hairy recap of 2014 venture capital: http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/ http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/ Nothing on here is alarming at all - look at fundraising, look at how much money was invested in venture companies, look at valuations, look at capital exited; all really healthy. Sure, maybe the "spray and pray" style of seed investment has stopped as VCs are pickier about early stage companies or prefer to focus on later stage companies with their portfolios, but that's not necessarily a terrifying sign of some big bubble popping. It might be harder for a business plan and a website to get a few hundred thousand dollars circa 1998, but a lot of promising companies are still getting the money they need to grow.
paulftw 12y ago
Suppose you got $40-100k from one of the dozens of accelerators and the cost of running an online business shrinks every year. Is your next raise still counted as seed or series A? Are successful kickstarter campaigns counted as seed deals? Should they? Maybe it's not that seed bubble is popping, but there so many new ways to run a startup that old metrics are no longer relevant.
applecore 12y ago
There's a significant time delay between when seed rounds are closed and when they're announced, so data for the most recent quarters are almost certainly incomplete. This leads to the spurious conclusion that the number of seed rounds declined in 2014.

87 points by dmor 12y ago

Interesting graph. The "bubble" goes parabolic right in 2009, as the financial system is awash in QE money, searching for yield. Almost textbook.

gee_totes 12y ago
QE has nothing to do with VC
- deleted 12y ago
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- kchoudhu 12y ago
  Yeah, cheap money never goes searching for yield.
- cjensen 12y ago
  When demand increases for Apples, the price of Apples increases. When the price of Apples increases, the demand for Oranges increases. Fed demand for Investment Bonds increases the price of Investment Bonds. When the price of Investment Bonds increases, the demand for other investments increases. Textbook Econ 101, as the parent comment noted.
  - gee_totes 12y ago
    I would say you're comparing apples to oranges by conflating Investment Bonds (which I'm assuming you mean Treasury Bonds), but you've already set yourself up for the apples and oranges with your example. If you'll check the source article[0] that the Techcrunch graph was pulled from, you'll see that there is a negative correlation between the Treasury bond yield and the amount of money flowing into seed deals. According to your Textbook Econ 101, there should be a positive correlation between these two. But the data shows there is not. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see...
- hnnewguy 12y ago
  >QE has nothing to do with VC Sure it does. Easy money is easy money. That goes for you and your mortgage at historically low rates, or VCs raising capital. When stimulus is occurring, it's interesting to see where it ends up. I'm not implying anything nefarious. In fact, I'd say it's working as intended (or at least expected).
  - gee_totes 12y ago
    To make sure we're talking about the same thing; the pink line in the second graph on the techcrunch article is what you're talking about when "the bubble goes parabolic". That pink line represents the number of seed deals completed, not the amount of money in the system. Unfortunately, I cannot download the original dataset that Mattermark is using, but using a dataset from Pricewaterhouse Coopers[1], and data from FRED[2], I have run some statistical analysis using R. My results are here: http://imgur.com/a/eFzs1 http://imgur.com/a/eFzs1 In short, the only statistical correlation I can find between QE and Seed capital is a negative one, which would contradict your original hypothesis. [0]https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see... [1]http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistoricTrend http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistor... [2]http://research.stlouisfed.org/fred2/graph/?id=MBST# http://research.stlouisfed.org/fred2/graph/?id=MBST#
    - hnnewguy 12y ago
      >My results are here Why would you compare quarterly values of seed money to a cumulative total (QE) and expect a correlation? They are completely different series. Try doing a running total for the seed money and the graph will look different. The first and third graphs don't make sense for this reason. The second graph is better, and you can see there is some correlation. Did you test for lags, or do you assume that QE money would flow instantly into the coffers of institutional investors? I applaud your effort, but there is more to this analysis than overlaying two graphs. You need to understand the data.
nathanaldensr 12y ago
A very good observation, and one that I've been making to my friends and family. Where else to put the money sloshing around in the system except technology and automation? It almost doesn't matter what the idea is, only that it "could be big." Many other industries are either already commoditized (manufacturing) or require too much money to enter (healthcare, anything regulated heavily by the government). Why not throw some money at a few guys who want to "change the world?"

k__ 12y ago

So bootstrappers are on the rise now?

jacquesm 12y ago
They never stopped. The number of bootstrappers dwarfs the number of funded companies, they tend to score lower but they score more frequently. They also don't get press unless they're acquired by some company. Lots of money changing hands (investment, blow-up, acquisition) is what gets you press.
fivedogit 12y ago
Yes and it's going mainstream. Starting a company is so cheap and fast now that it doesn't even take a team of 2 or 3 anymore. A single person can do it. There are so many benefits to solo-founding, it's not even funny. Without co-founders, there's no delay in getting started. There's no drama. The development cycle is fast and the code can be remarkably clean. Personally, I make changes to my production code all the time because the whole thing is in my head and I know what effect my changes will have. (And if I screw something up, I know how to fix it in minutes, not hours.) With a team, that's simply not possible. Investors are going to wake up to this reality soon and accelerators will trip over each other to claim to be the "accelerator of solo founders". Corollary to this, MBAs and other non-tech types are screwed in the years to come. Engineers won't need them anymore. 1. Make a product. 2. Get some baseline traction. 3. Join an accelerator or raise a seed round, if you need it. 4. Hire the founding team. 5. Profit.
- jacquesm 12y ago
  One small problem: co-founders make you stronger. You are your own single point of failure. For many customers that makes you a no-go zone.
  - semperfaux 12y ago
    "Co-founders make you stronger" is a questionable generalization. Cofounders add a lot of things, both positive and negative, and as long as you and (each of) your cofounder(s) have vital skills/resources that are unique in the group, you now have multiple "single points of failure." Yes, cofounders can contribute bandwidth, skills, connections, and all sorts of other positive things. They can also contribute friction, disagreement, and various other negative things. It's not a cut and dry benefit.

Patrick_Devine 12y ago

We definitely found this out the hard way. We tried to raise $750K for a seed round and were repeatedly told that our tech/team were great but that we didn't have enough traction. It's kinda hard watching people go on about the "bubble" when you're just out there trying to scrap it out and find something that works.

beat 12y ago
I'll probably be looking for seed later this year, so this makes me sad and despondent. I can probably bootstrap to traction, but it's really hard.
- hluska 12y ago
  Don't feel sad - this is just a set of numbers. While the big picture trend doesn't look very good, that graph still shows that hundreds of companies just like yours are closing deals. Keep the faith and keep working hard - fortunes are made during downturns...
trevelyan 12y ago
YC offers 20k+ for a few percent. Startup Chile is 40k with a co-investment of around 10k. That money is supposed to support the founders for a few months while they get the prototype out the door and build traction. In comparison, 750k is a metric ton of cash, and should be enough to support a founding team for several years. Not judging, but if you're positioning it as a seed round instead of Series A that may be part of the problem.
- jacquesm 12y ago
  > In comparison, 750k is a metric ton of cash, and should be enough to support a founding team for several years. Until you start hiring. Then you can burn through that kind of money surprisingly fast. Talent is (rightly!) expensive. So unless your co-founders and you have all the skills you need to see your product out the door you could very well need multiple 100 Ks to get going. If you're doing anything hardware related or that needs certification or a hundred other things that you could spend your money on then you might find this is not as much as it seemed at first. Not all start-ups are making simple web apps or mobile apps. Doing a seed round for $300K is not much easier than $750K and will give you only half the return on your time invested. At least at 750K you'll still be looking at a relatively abbreviated process rather than a full blown DD (which would burn up too large a chunk of the investment to make sense).

jacquesm 12y ago

This plays right into YCs hands: seed money is harder to get, but YC is still open for business. And with the number of deals they fund the remainder of the seed world is left with what they (incorrectly) perceive as 'second choice', now that the path to YC is well known.

fivedogit 12y ago
This is true. I think what we saw was an accelerator bandwagon. It was truly a revolutionary mechanism in the VC world and everybody under the sun wanted in on the action... but there were too many and hardly any of them could replicate the same results as YC and TS. We knew some of them were going to die off and now they have. I fail to see how anybody but the "me too" accelerators lose with this trend (and they were losing already, obviously). Startup founders shouldn't have been taking money from them anyway, so the fact that they're dying off just saves naive founders from making at least this one mistake.
- ewzimm 12y ago
  That's something worth remembering about reading graphs. When you're looking at the aggregate of a trend, it's worth asking what changes in that aggregate represent. Sometimes, growth means taking on dead weight. Sometimes recession means shedding it.
deleted 12y ago
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eudoxus 12y ago

That first graph doesn't really show the bursting of a bubble. Yes, the number of rounds have gone down, but I think an important metric is the amount raised, which has only slightly decreased. This make it seems like there have been stricter requirements by seed investors before jumping in. Which to me sounds like not a bad thing. Ideally we'll get less Yo apps this way.

jacquesm 12y ago
If this just affected the Yo apps it would be great news but that does not seem to be the case.
dlevine 12y ago
The problem I see is that if fewer companies are being funded early-stage today, then there will be fewer companies around to get later-stage funding tomorrow. One of the reasons we have so many companies getting later stage funding right now is that there was so much seed funding a few years back. If early-stage funding is starting to dry up, that may be a sign of other things to follow...

staunch 12y ago

Most professional investors are sheep. The number and scale of opportunities in technology is growing incredibly and they're not all doubling down. It's been almost 10 years and no one has launched a credible competitor to YC. That's proof of how incredibly weak the industry is. Where investors are afraid, consumers aren't the least bit deterred. They don't talk of bubbles. They want cool new stuff that makes their live better and they're paying for it. The internet has reached critical mass, everyone is online and has a credit card. Which is why, in the near future, new technology will mostly come from companies that were funded by crowdfunding, not professional investors.

rgbrenner 12y ago
crowdfunding? really? Both crowdfunding and VCs fund a tiny portion of the total small businesses started. Did you see those charts? The scale is in hundreds. In the US alone there are millions of small businesses started each year. Sure, most of those aren't trying to change the world (haven't seen statistics on that)... but even if it's 0.5% and you exclude all the solo founders, it would still far out number crowdfunding and VCs by a large margin.
- jsprogrammer 12y ago
  How are the millions funded?
  - yen223 12y ago
    Loans, savings, investments from friends and relatives, etc.
- staunch 12y ago
  There are more Italian restaurants funded every year than there are technology startups as a whole. But if you take "startup" to mean "technology startup" you're talking about the same thing I am. And almost all of these startups were funded by VCs early on. Crowdfunding will replace VCs as it becomes possible for people to get equity in exchange for funding. Your average person is more than clever enough to invest $500 in Dropbox the day it launches as a video on Digg. Only a broken system stops them from being able to profit the way already rich investors do today. In the same way that Uber didn't replace taxis, crowdfunding will not replace VCs, it will surpass them. The crowd has far more money and are themselves the ultimate judge of what's good. http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfun... http://www.forbes.com/sites/geristengel/2014/03/26/equity-crowdfunding-site-targets-the-gigantic-untapped-consumer-market/ http://www.forbes.com/sites/geristengel/2014/03/26/equity-cr...

abalone 12y ago

Except: "Bear in mind that the total dollar amount of money flowing into seed deals barely declined". That is a questionable definition of "popping" a bubble. The article does go on to admit that it's just selectively illustrating the number of deals, not the amount invested in seed deals, which is actually still the same in aggregate, and then wishy-washily says it's up to you to interpret this yourself etc. But since most people don't read too far past the dramatic chart and the headline, I think it would be fair to say this smacks of click-baity sensationalism.

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jsprogrammer 12y ago
Rags need to produce articles. Exhibit 1.
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soup10 12y ago
First of all. The word click-bait needs to die. It implies wrongdoing by the author, but all you are really saying is the headline grabbed your attention and you didn't like the content. Second, the aggregate chart shows the total amount invested went from 9 years of growth to it's first decline. Look at Q3 2014 vs Q3 2013 more than a 50% decline in seed deals! With numbers like that it's hard not to interpret it as foreshadowing continued declined.
- abalone 12y ago
  Nope. It shows the total number of deals, not amount invested. You fell victim to precisely the problem I mentioned.
7Figures2Commas 12y ago
That should actually be a red flag about the data. When you see a rapid, precipitous decline in deals but amounts don't change, you have to look at the data. How do you get a rapid, precipitous decline in deals without an expected decrease in dollars? Use a data source that a) is liable to miss deals[1] and b) will classify multi-million dollar rounds involving institutional/venture investors as "seed"[2][3]. [1] Per my other comment I work with a startup that raised a public seed round in Q4 that is not listed in Crunchbase. [2] https://www.crunchbase.com/organization/skydio https://www.crunchbase.com/organization/skydio [3] https://www.crunchbase.com/organization/north-technologies https://www.crunchbase.com/organization/north-technologies

nedwin 12y ago

I totally misread the graphs. Sorry Danielle!

lstamour 12y ago
Did I see the same chart you did? I went back and looked, all I saw was "Q1" and "Q3" labels while the data showed all four quarters, but only half were labelled. It /was/ missing a Q4 though at the end.
- dmor 12y ago
  Creator of the graphs and author of the original post (here: https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-raised-in-q4-2014-down-30-38627517ca4e https://medium.com/mattermark-daily/why-is-the-number-of-see...) All the quarters from Q1 2005 through Q4 2014 were plotted. The axis labels do not show all of them due to space constraints. Apologies that this was confusing, I will make sure to add all the tick marks and labels in the future.
  - lstamour 12y ago
    I don't think you need all, I mean, there were space constraints. This is why a bar graph can be clearer than a line graph for discrete data though. They may be boring, but they are often effective at communication. :-) Oh and it's helpful to label both ends of the graph, from Q1 2005 to Q4 2014, then fill in what labels you can in the middle. If you'd picked random Qs or even just every year, perhaps to shade the backgrounds of each year, that might have made for a more understandable graph. Our fault for misunderstanding it in the first place, of course... This is also why some places link to tables of data used in the graph. You could click to view the table if you had any questions about what you're seeing in the graph. Stephen Few's an accessible read on this subject.
    - dmor 12y ago
      Cool, this is great feedback. I'll check out Stephen Few's work too -- thanks for reading and caring!

user02 12y ago

"The Seed Bubble Has Popped" has popped.

kirillzubovsky 12y ago

Seed deals decline while total $ spent stays still? Good news IMO. Means VCs are putting more of their weight into co's they do fund. #win

birken 12y ago

> And of course there is another possibly — maybe hundreds of startups collectively decided to stop announcing their funding rounds? There is also a much simpler explanation... there is a lag in when seed rounds happen and when they are announced. The fact that the most recent data point stands out as a massive outlier is a strong indication of this possibility. Simple to check as well, we can look at this same plot in 6 months with the back filled data and see if the conclusion is the same. Jumping to conclusions for the sake of a headline is fine, that is Techcrunch's job after all. But for those of you that do data analysis for your own companies, be careful when jumping to conclusions. If you see a massive outlier on your graph like this, more often than not it is a data collection/sampling issue than a giant change in the world. And of course if you do think it is a giant change in the world, extraordinary claims require extraordinary evidence. So there shouldn't be a caveat, which if true, completely disprove the whole conclusion.

7Figures2Commas 12y ago
You also need to consider the source of the data. From what I understand, much of Mattermark's data comes from Crunchbase, and the categories in the Mattermark chart[1] mirror categories on Crunchbase. Crunchbase is by no means a comprehensive source of all deals. As an example, I work with a company that raised a seed round in Q4 2014. Crunchbase does not have this funding despite the fact that it's public. For the deals that Crunchbase does have, the categorization can be very spotty. For instance, you can find $2+ million party rounds with institutional investors categorized as "Seed" while there are sub $1 million rounds categorized as "Venture" or even "Series A." There are also oddball categories like "Debt Financing" and "Convertible Note" which in some cases appear to be the same thing. In my mind this is almost certainly a case of garbage in, garbage out. [1] https://tctechcrunch2011.files.wordpress.com/2015/01/screen-shot-2015-01-16-at-2-35-10-pm.png?w=680&h=514 https://tctechcrunch2011.files.wordpress.com/2015/01/screen-...

sharkweek 12y ago

Here's a big hairy recap of 2014 venture capital: http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/ http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/ Nothing on here is alarming at all - look at fundraising, look at how much money was invested in venture companies, look at valuations, look at capital exited; all really healthy. Sure, maybe the "spray and pray" style of seed investment has stopped as VCs are pickier about early stage companies or prefer to focus on later stage companies with their portfolios, but that's not necessarily a terrifying sign of some big bubble popping. It might be harder for a business plan and a website to get a few hundred thousand dollars circa 1998, but a lot of promising companies are still getting the money they need to grow.

paulftw 12y ago

Suppose you got $40-100k from one of the dozens of accelerators and the cost of running an online business shrinks every year. Is your next raise still counted as seed or series A? Are successful kickstarter campaigns counted as seed deals? Should they? Maybe it's not that seed bubble is popping, but there so many new ways to run a startup that old metrics are no longer relevant.

applecore 12y ago

There's a significant time delay between when seed rounds are closed and when they're announced, so data for the most recent quarters are almost certainly incomplete. This leads to the spurious conclusion that the number of seed rounds declined in 2014.