How Seed Funding Has Exploded In The Past 10 Years

Editor鈥檚 note: This is the first in a multipart series looking at seed funding trends.聽

Seed-stage funding to startups has exploded in the past decade and become an asset class of its own. If that wasn鈥檛 obvious already, consider that in just the past few months, three of Silicon Valley鈥檚 largest and best-known venture firms鈥� and 鈥攁ll announced large new dedicated seed funds.

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To visualize this dramatic change in the venture ecosystem and understand how much seed investment grew in the past 10 years, we decided to look at the number of U.S. startups that were funded over various five-year time frames and at different stages.聽

SA国际传媒 data underscores an impressive rise in funding to the smallest startups: Fewer than 3,200 companies received seed funding in the period between 2006 and 2010. A decade later, that had ballooned to more than 23,000 startups.

A brief history of seed funding

One of the biggest catalysts for new startup creation was the launch of and cloud computing in the early 2000s鈥攏ew technologies that drastically reduced the cost and complexity of starting a new tech company. That, in turn, transformed seed funding into its own institutional asset class in the period between 2006 and 2010.

Still, startups that raised Series A funding continued to outpace startups raising seed until around 2009鈥攚hen seed funding took the lead and began to explode, SA国际传媒 data shows.聽

Seed funding surged again in the period between 2011 and 2015, with 5x the number of companies funded at seed compared to the prior five years. By contrast, Series A-funded companies grew at a much slower pace, showing 42 percent growth.聽

By the 2016-2020 timeframe, there were 23,000 seed-funded companies in the U.S.鈥攗p another 30 percent compared to the prior five years. That put seed growth in line with the growth in Series A, where funded startups numbered over 6,800 during that five-year period鈥攗p 31 percent over the same period.

Rise of the VC seed investor

In the mid-2000s, venture firms accustomed to investing $3 million to $5 million at Series A and $8 million to $12 million at Series B weren鈥檛 all that interested in joining what looked like institutional angel rounds.聽

The SA国际传媒 numbers bear this out. From 2006 to 2010, multistage venture firms had seed investments in the single digits in total over five years.聽

But these VCs didn鈥檛 cede the seed stage for long. From 2011 to 2015, a number of leading multistage venture firms started to grow their seed practices, the most active of which were Andreessen Horowitz, and Greylock.聽

As companies raised multiple seed fundings as well as larger seed rounds in the $1 million to $3 million range, larger venture firms seeking to be the first institutional investors became more invested at seed.聽

The firms investing in seed now

The most active multistage venture firms in seed investing more recently are , and Khosla Ventures.聽

Khosla has raised multiple seed funds over time and was a seed investor in , , and . Just this week, the firm announced the close of a new $400 million seed fund. That follows a $400 million seed fund the firm raised in 2014 and a $300 million seed fund in 2010.

Greylock, meanwhile, last month what the firm says is the largest pool of venture capital dedicated to seed investing: A new $500 million fund.聽

One of the reasons many venture firms are stockpiling funds to invest into seed startups is that getting in at the earliest stages with a young startup lets those investors have a say in crucial decisions early on.聽

鈥淭he 鈥榙ecision tree鈥� of a company has the most range at the beginning, and we want to be there as a partner to founders from the foundation,鈥� Greylock, which has made seed investments in , and , said in its fund announcement.

Andreessen Horowitz a $400 million seed fund in August. The firm has made seed investments in , and over the years.

鈥淲hile having a seed fund is not a shift in strategy鈥攕eed has long been a core focus鈥攊t underscores our commitment to seed investing as a first class motion for the firm,鈥� Andreessen Horowitz said at the time.聽

Size of seed grows

We also looked at the median and average deal sizes for seed rounds for these 14 multistage funds over the decade, and found the median seed deal has grown from $1.5 million to $4 million, and the average from $1.7 million to $4.6 million.聽

While the size of the typical round has ballooned, there鈥檚 still a great deal of variance, however. In 2020, seed fundings from these investors ranged from $700,000 to $22 million.聽

The seed rounds of recent years are sizing up to look more like Series A fundings. 鈥淭he imbalance between supply and demand has pushed round sizes and valuations to a point where investors are no longer rewarded for the risk they take, and seed rounds are now done at Series A prices and sizes from three years ago,鈥� of told me via email.

鈥淭he problem,鈥� he added, 鈥渋s that everyone is pricing deals as if they are a 10s of billions of dollars exit opportunity. The vast majority aren鈥檛.鈥�

Not just a side investment

Seed funding has exploded over the past 10 years, moving these investments into the venture mainstream.聽

Case in point: While seed investment was once sidelined as separate from a venture firm鈥檚 core focus鈥攁nd therefore not subject to the same rules as its venture practice鈥攕ome firms now require unanimous partner approval for their seed investments as well.聽

That鈥檚 the case at , whose I spoke to earlier this year on the announcement of the firm鈥檚 $195 million fourth seed fund. 鈥淥ur seeds don’t get any different treatment than our Series As, except for there’s usually not an official board,鈥� she said.

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