At last, European founders have actionable benchmarks on Seed funding

Founders looking to raise a Seed round inevitably face three practical questions: (1) How much runway do you need until the Series A? (2) How much capital do you need to support that runway? (3) Which investor should you raise that capital from?

Intuitively, the answers can and should be data-driven, at least to begin with. But they rarely are, and that has been one of my major surprises since joining the realm of Seed VC almost a year ago.

Encouragingly, as startup ecosystems across Europe evolve, founders put in much more time and effort to research the landscape they operate in — relevant funding rounds and prospective Seed investors. Yet, the analysis remains mostly anecdotal. So, why aren’t there robust fundraising benchmarks to inform founders?

The problem lies with the highly subjective nature of the data. If a $10m round of one company can be labelled as Seed while a $2m round of another company can be labelled as Series A — with the label often having more to do with positioning reasons than the substantive stage of the company — how can any meaningful like-for-like comparisons be drawn between rounds, sectors, geographies, and funds?

To tackle this problem, we partnered with Dealroom and Atomico to devise a standardised dataset for a consistent analysis. In short, we took 22,000 European funding rounds since 2012, and systematically re-labelled them based on their size and timing, ignoring the company’s self-reported label. This yielded 8,800 funding rounds of 6,500 companies, in the following standardised brackets: $0.25–1m for Pre-Seed, $1–4m for Seed, $4–7m for “Old” Series A, and $7–15m for “New” Series A.

And indeed, that systematic re-labelling shows a very different reality…

… and finally provides some reliable and actionable benchmarks for founders raising their Seed round:

(1) How much runway do you need until the Series A?

The median time from Seed to Series A — and hence the minimum desirable runway — is 18 months.

(2) How much capital do you need to support that runway?

Companies raising $2–3m in total pre Series A funding are more likely to raise a Series A, but raising more than $3m does not improve that likelihood.

(3) Which investor should you raise that capital from?

This one appears less straightforward, as there is a lot to probe when talking to a Seed fund, including the background and style of the investment team, its relevant experience, areas of concrete value-add, and successful exits. Indeed, these and others are important attributes, and we try to address them ourselves when articulating our offering to founders. But truth be told, they can often be, well, fluffy… And how and whether they actually translate into better portfolio performance remains widely unclear. After all, we’re in finance, so where are the bottom-line numbers?

One key metric in benchmarking Seed funds is their conversion rate — namely, the share of their Seed investments that go on to raise a Series A within a certain period of time. Importantly, that metric is independent of a fund’s size or economics (unlike absolute numbers of investments or follow-on funds raised by the portfolio). And here are the two crucial findings:

(a) The average European conversion rate from Seed to Series A is 19% within 36 months from the Seed.

(b) Companies fundraising from top Seed funds are significantly — up to 40 percentage points! — more likely to raise Series A, and do so faster. In other words, who you raise your Seed from actually matters — a lot!

Granted, different companies have different funding needs, yet having robust reference points on how much to raise, for how long, and from whom — gives founders an invaluable edge in their fundraising.

The detailed methodology, analysis and findings can be found here. We welcome any constructive feedback, hoping to gradually develop a more data-driven discourse on the journey to Series A in Europe, and inform early-stage founders as they try to navigate a maturing ecosystem with more capital, more investors, and more competitors.

We plan to follow up every month or two with more granular benchmarks focused on specific geographies, sectors, business models, stages and others. Stay tuned.