The Era of Angels is Closing

Danielle Morrill of Mattermark put out a remarkable graph that seems to show a Seed Bubble popping in the last few quarters (see chart above). I have also seen charts from CBInsights showing a drop in seed financings in 2014, the first YoY drop in five years, yet still an increase in overall seed funding.

Danielle notes that the size of the drop may be a data lag — many Q4 financings haven’t been reported, some super-sized seed financings may be mischaracterized as Series A, etc. Still, directionally something has changed: seed financings down, but overall seed funding still up.

I think it reflects the institutionalization of seed. Angels are raising funds. When we started Bullpen Capital in 2010, there were fewer than 20 seed funds. At last count in 2014, 221. Up 10x in four years. And we think we’ll see 400 before we see 40 again.

Funds invest differently: fewer financings, bigger rounds. We have previously noted how seed is a process, meaning a series of smaller raises. Now it is becoming normalized: fewer financings, larger sizes.

I am somewhat wistful of this change. Angels are not going away, but they are leaving the Middle Ground between founders and funds. As they get institutionalized, they behave more like VCs. It feels as if the Elves are leaving Middle Earth.