The number of seed rounds in 2014 fell compared to 2013
techcrunch.com
techcrunch.com
That is a questionable definition of "popping" a bubble.
The article does go on to admit that it's just selectively illustrating the number of deals, not the amount invested in seed deals, which is actually still the same in aggregate, and then wishy-washily says it's up to you to interpret this yourself etc. But since most people don't read too far past the dramatic chart and the headline, I think it would be fair to say this smacks of click-baity sensationalism.
Second, the aggregate chart shows the total amount invested went from 9 years of growth to it's first decline. Look at Q3 2014 vs Q3 2013 more than a 50% decline in seed deals! With numbers like that it's hard not to interpret it as foreshadowing continued declined.
How do you get a rapid, precipitous decline in deals without an expected decrease in dollars? Use a data source that a) is liable to miss deals[1] and b) will classify multi-million dollar rounds involving institutional/venture investors as "seed"[2][3].
[1] Per my other comment I work with a startup that raised a public seed round in Q4 that is not listed in Crunchbase.
[2] https://www.crunchbase.com/organization/skydio
[3] https://www.crunchbase.com/organization/north-technologies
Series A also are higher amounts than Seed, so volume in investments is actually going up.
Also, it doesn't matter if something is called Series A or Seed. In the end it is about the amount of dollars available to entrepreneurs.
I would apply the "San Francisco Rent Test". Are SF rents still high? Then Seed Bubble: not popped.
http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/
Nothing on here is alarming at all - look at fundraising, look at how much money was invested in venture companies, look at valuations, look at capital exited; all really healthy.
Sure, maybe the "spray and pray" style of seed investment has stopped as VCs are pickier about early stage companies or prefer to focus on later stage companies with their portfolios, but that's not necessarily a terrifying sign of some big bubble popping. It might be harder for a business plan and a website to get a few hundred thousand dollars circa 1998, but a lot of promising companies are still getting the money they need to grow.
I fail to see how anybody but the "me too" accelerators lose with this trend (and they were losing already, obviously). Startup founders shouldn't have been taking money from them anyway, so the fact that they're dying off just saves naive founders from making at least this one mistake.
Which to me sounds like not a bad thing. Ideally we'll get less Yo apps this way.
Fed demand for Investment Bonds increases the price of Investment Bonds. When the price of Investment Bonds increases, the demand for other investments increases.
Textbook Econ 101, as the parent comment noted.
If you'll check the source article[0] that the Techcrunch graph was pulled from, you'll see that there is a negative correlation between the Treasury bond yield and the amount of money flowing into seed deals.
According to your Textbook Econ 101, there should be a positive correlation between these two. But the data shows there is not.
[0]https://medium.com/mattermark-daily/why-is-the-number-of-see...
Sure it does. Easy money is easy money. That goes for you and your mortgage at historically low rates, or VCs raising capital. When stimulus is occurring, it's interesting to see where it ends up.
I'm not implying anything nefarious. In fact, I'd say it's working as intended (or at least expected).
That pink line represents the number of seed deals completed, not the amount of money in the system.
Unfortunately, I cannot download the original dataset that Mattermark is using, but using a dataset from Pricewaterhouse Coopers[1], and data from FRED[2], I have run some statistical analysis using R.
My results are here: http://imgur.com/a/eFzs1
In short, the only statistical correlation I can find between QE and Seed capital is a negative one, which would contradict your original hypothesis.
[0]https://medium.com/mattermark-daily/why-is-the-number-of-see...
[1]http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistor...
Why would you compare quarterly values of seed money to a cumulative total (QE) and expect a correlation? They are completely different series. Try doing a running total for the seed money and the graph will look different. The first and third graphs don't make sense for this reason.
The second graph is better, and you can see there is some correlation. Did you test for lags, or do you assume that QE money would flow instantly into the coffers of institutional investors?
I applaud your effort, but there is more to this analysis than overlaying two graphs. You need to understand the data.
It's been almost 10 years and no one has launched a credible competitor to YC. That's proof of how incredibly weak the industry is.
Where investors are afraid, consumers aren't the least bit deterred. They don't talk of bubbles. They want cool new stuff that makes their live better and they're paying for it. The internet has reached critical mass, everyone is online and has a credit card. Which is why, in the near future, new technology will mostly come from companies that were funded by crowdfunding, not professional investors.
Both crowdfunding and VCs fund a tiny portion of the total small businesses started.
Did you see those charts? The scale is in hundreds.
In the US alone there are millions of small businesses started each year. Sure, most of those aren't trying to change the world (haven't seen statistics on that)... but even if it's 0.5% and you exclude all the solo founders, it would still far out number crowdfunding and VCs by a large margin.
And almost all of these startups were funded by VCs early on. Crowdfunding will replace VCs as it becomes possible for people to get equity in exchange for funding. Your average person is more than clever enough to invest $500 in Dropbox the day it launches as a video on Digg. Only a broken system stops them from being able to profit the way already rich investors do today.
In the same way that Uber didn't replace taxis, crowdfunding will not replace VCs, it will surpass them. The crowd has far more money and are themselves the ultimate judge of what's good.
http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfun...
http://www.forbes.com/sites/geristengel/2014/03/26/equity-cr...
There is also a much simpler explanation... there is a lag in when seed rounds happen and when they are announced. The fact that the most recent data point stands out as a massive outlier is a strong indication of this possibility. Simple to check as well, we can look at this same plot in 6 months with the back filled data and see if the conclusion is the same.
Jumping to conclusions for the sake of a headline is fine, that is Techcrunch's job after all. But for those of you that do data analysis for your own companies, be careful when jumping to conclusions. If you see a massive outlier on your graph like this, more often than not it is a data collection/sampling issue than a giant change in the world. And of course if you do think it is a giant change in the world, extraordinary claims require extraordinary evidence. So there shouldn't be a caveat, which if true, completely disprove the whole conclusion.
Crunchbase is by no means a comprehensive source of all deals. As an example, I work with a company that raised a seed round in Q4 2014. Crunchbase does not have this funding despite the fact that it's public.
For the deals that Crunchbase does have, the categorization can be very spotty. For instance, you can find $2+ million party rounds with institutional investors categorized as "Seed" while there are sub $1 million rounds categorized as "Venture" or even "Series A." There are also oddball categories like "Debt Financing" and "Convertible Note" which in some cases appear to be the same thing.
In my mind this is almost certainly a case of garbage in, garbage out.
[1] https://tctechcrunch2011.files.wordpress.com/2015/01/screen-...
It's kinda hard watching people go on about the "bubble" when you're just out there trying to scrap it out and find something that works.
In comparison, 750k is a metric ton of cash, and should be enough to support a founding team for several years. Not judging, but if you're positioning it as a seed round instead of Series A that may be part of the problem.
Until you start hiring. Then you can burn through that kind of money surprisingly fast. Talent is (rightly!) expensive. So unless your co-founders and you have all the skills you need to see your product out the door you could very well need multiple 100 Ks to get going. If you're doing anything hardware related or that needs certification or a hundred other things that you could spend your money on then you might find this is not as much as it seemed at first.
Not all start-ups are making simple web apps or mobile apps.
Doing a seed round for $300K is not much easier than $750K and will give you only half the return on your time invested.
At least at 750K you'll still be looking at a relatively abbreviated process rather than a full blown DD (which would burn up too large a chunk of the investment to make sense).
The bigger problem was we were doing something really technical that required a lot deeper pockets, and people were nervous to invest without seeing more traction. Which is reasonable; capital isn't flowing like champagne like a lot of people seem to believe.
> capital isn't flowing like champagne like a lot of people seem to believe.
Absolutely, and I don't think it really has since 2000 to be honest. There was a minor boom around 2004 for "user-generated content" and "social/video" sites, and then another for mobile apps after the app store launched. But the general trend has been towards low-value "seed" rounds for demonstrating traction, and then lots of financing for late-stage companies that would previously have already IPO'd.
I hope you guys get the funding you need. I'm just not sure that your experience is relevant to a discussion on the availability of seed funding, that's all. What this conversation really highlights is the way no-one here even seems to even have the language to talk about what is reasonable in terms of expectations/traction for mid-stage startups that are more capital intensive.
Lots of money changing hands (investment, blow-up, acquisition) is what gets you press.
There are so many benefits to solo-founding, it's not even funny. Without co-founders, there's no delay in getting started. There's no drama. The development cycle is fast and the code can be remarkably clean. Personally, I make changes to my production code all the time because the whole thing is in my head and I know what effect my changes will have. (And if I screw something up, I know how to fix it in minutes, not hours.) With a team, that's simply not possible.
Investors are going to wake up to this reality soon and accelerators will trip over each other to claim to be the "accelerator of solo founders".
Corollary to this, MBAs and other non-tech types are screwed in the years to come. Engineers won't need them anymore. 1. Make a product. 2. Get some baseline traction. 3. Join an accelerator or raise a seed round, if you need it. 4. Hire the founding team. 5. Profit.
Yes, cofounders can contribute bandwidth, skills, connections, and all sorts of other positive things. They can also contribute friction, disagreement, and various other negative things. It's not a cut and dry benefit.
In my experience, if you have a good brand image and a track record, people just assume you have contingency plans, lots of funding and/or a second programmer on staff.
Founder conflicts are death.
The main point being, that if you start off by selling a product (rather than getting people to sign up for a free product and then monetizing later) and can get a fraction of the people to sign up then you are in profit. Further, if you own 100% of the company, you are profitable much faster so you don't need to grow as large.
Ex: $30/month * 500 users = $15,000 a month. If that was a bootstrapped business with just a solo founder...$$$
Can you explain how 100% ownership translates into earlier profitability?
Of course, I think what that assumes is that one person could launch a product as quickly as a team. It's easy to imagine a product being complex enough that a team could launch it before a solo founder would.
But ignoring that.. it's clearly faster/easier to build a business to support a single person than multiple people.
Of course the reason people add confounders/employees and take VC funding is because it makes the total pie easier to grow in many cases.
All the quarters from Q1 2005 through Q4 2014 were plotted. The axis labels do not show all of them due to space constraints. Apologies that this was confusing, I will make sure to add all the tick marks and labels in the future.