Navigating the Changing Landscape of Series A Funding: How Seed-Stage Startups and Investors are Adapting

The hurdle for Series A funding is a lot higher than it was a year ago — and investors in seed-stage companies are having to respond.

They don’t have much choice if they want their startups to survive. When the market abruptly turned in the spring of 2022, late-stage companies were the first to feel the pain. But that downward financial pressure has more recently made its way to much newer outfits, which are getting lower valuations in their next round – 1.6x in the second quarter, the lowest value since the third quarter of 2013, per Pitchbook data – and facing choosier Series A investors with plenty of options.

There’s no shortage of ways that VCs are getting creative on this front. The European venture firm Breega touts its “scaling squad” to help support its many seed bets. Pear VC, a Bay Area-based seed-stage venture firm, is constantly rolling out new programming aimed at supporting and educating the nascent teams that it backs.

Even the bigger, stage-agnostic firms are doing more to telegraph that they’re responding to the current market. In October, for example, the investment firm Greylock rolled out Edge, a three-month company-building program designed to advance select pre-idea, pre-seed and seed founders from inception to product-market fit.

VC heavyweight Lightspeed Venture Partners is also stepping up its game. The firm has long written early (and sometimes, first) checks to nascent startups, including the messaging app Snapchat; the application performance management outfit AppDynamics (acquired by Cisco just ahead of its IPO); and the the publicly trade cloud computing company Nutanix (current market: $12 billion).

By the firm’s telling, it has always focused on helping to polish such diamonds in the rough. Still, given the rising standards of Series A investors across the board, Lightspeed tells TechCrunch that it’s now formalizing some of the mentorship it has long offered its portfolio companies through a company-building program for its founders dubbed Launch.

Led by partner Luke Beseda, the purported idea isn’t to attract more founders to Lightspeed but rather to clear the path for the startups it has already funded so they can get to that Series A round. Nearly all of them face the same questions and obstacles, explains Beseda. “They need to know: how do I set up and run a business? How do I hire and build a core team? How do I build my product strategy through customer interviews and design partnerships and drive revenue?” Going forward, the firm hopes to more systematically answer these questions through expert-led workshops, seed “playbooks,” and other toolkits that Lightspeed is offering through the program.

Certainly, every bit of help must be welcome right now.

While many startups are simply dissolving — at least 3,200 venture-backed U.S. companies have gone out of business in 2023, according to data compiled for The New York Times by PitchBook — others are finding that the emphasis by investors on year-over-year growth and annual recurring revenue is real and not going away any time soon.

Right now, that includes Series A investors.

“We went through a period where there was just a lot of exuberance in the market – 2020, 2021, the tail end of 2022 – where there was a feeling that gravity didn’t exist,” VC Sarah Tavel of Benchmark told TC at an event earlier this month, where she addressed the changing landscape for Series A funding. “Now, we’re back to a place where we all realize that the work of building a company is really hard. You have to have an incredible orientation toward the customer. You have to have an incredible orientation toward the fundamentals of the business that you’re building.”

Said Tavel, “It’s not just about the vanity metrics – the top line numbers – that I think a lot of people got lost in. Ultimately, the startups that [succeed] are ones that generate profit and cash flow.”

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