Seed stage is NOT more risky than Series A-B-C stages? At least in USA?

Victor Osyka
Oct 23, 2017 · 4 min read
Red % are exits probabilities after each investing stage. Data by CBI, calculations by Victor

In VC every stage is *comparably* risky till you approach half a billion valuations.

I was looking on those data again: https://www.cbinsights.com/research/venture-capital-funnel-2/ with the stats on 1098 seed deals in USA in 2008–2009–2010. Enough time passed for this cohort — 7–9 years, so — companies exited, became unicorns or failed.

So, if using CBI stats to calculate probabilities of exits for the each stage (+ unicorns remaining), then success rates of exits in the red colour show really comparable order of values.

So, industry-wide seed stage is not killingly risky, at least according to CB Insights data? At least this is comparable with Series A-B-C numbers… So, is it rather more a question to allocate classic huge VC funds with hundreds of millions of $ under management into this stage, but the risk is more than bearable?

Of course, it is partially explained by the smaller size of exits, happening after the seed funding: 151 of 1098 co’s were acquired before Series A. And distribution of exits sizes collected by them is the following:

Data by CB Insights

So, I made a little bit more detailed reconstruction of the distribution of exits against size:

Exits by $50m breakdown, data by CBI

And then calculated average exits with this more clear distribution function:

Data by CBI, calculations by Victor

We can observe that:

- With unicorns the average exits is $154m in USA,

and

- Without those 20 non-exited unicorns out of 1098 seed start-ups the average exit size for these 306 exits is $93m.

What we see? Valuation at seed is on average 2–3x smaller than in Series A, so, those 151 of 1098 pre-Series A exits are still having very cool multiples on exits for the investors, right?

By the way I checked if these 1098 seed deals are really a representative sample of the industry.

For example, Preqin (aggregated, publicly available) data shows that there were some 1649 seed deals in USA in IT segment:

Red — seed deals in 2008–2010, data by Preqin, calculations by Victor

And some other cross-year chart, published by Mattermark based on Crunchbase and AngelList data, says that there were around 1300 seed deals in USA in 2008–2010.

Selected cases of seed investors doing seed at scale

Data by Angel.co/returns
  • Famous SV Angel seed fund did really well also in last decade, well known fact. Maybe I will review their numbers later when time permits.
  • NYC-based and world-distributed accelerated SOSV.com does 150 deals/year for $50m/year, and it achieves, as they say at their site, top 5% percentile IRR in the world. https://sosv.com/about/ + https://sosv.com/invest/
  • Y Combinator invested $120k/company in 1400 startups last decade at $3+m valuations (+ spent probably similar cost for their acceleration infrastructure). Combined value (realised and not) of these 1400 companies reached ~$80 billion.

Seed is indeed quite interesting. Top VC’s also routinely get into unicorns with their seed bets:

Data: Pitchbook VC Unicorn report, 2017

If you know — kindly suggest/help me — what other data one can find and analyse?

UPD:

Original CBI chart, mentioned in the first URL of this post, is below for your convenience:

https://www.cbinsights.com/research/venture-capital-funnel-2/

Victor Osyka

Written by

Angel/VC/founder. Consult on investing in: startups/VC funds/tech IPOs. Help companies w/ fundraise+strategy linkedin.com/in/victorosyka osyka.victor@gmail.com

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