- According to a quarterly report released by Pitchbook and National Venture Capital Association on Wednesday, the average angel and seed funding round is now at $2 million — the highest it has ever been.
- The report stated that deals under $1 million comprised more than 60% of angel and seed deals 5 years ago. As of September, it's flipped the other way: More than half of all such early-stage deals are now valued at over $1 million.
- Wednesday's report comes as investors scramble to keep pace with mega-funds like SoftBank who have invested in growth and early stage startups alike, driving up the price of investing even at the riskiest early stages.
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Venture capital is experiencing its own version of trickle-down economics, and not everybody loves the results.
According to a quarterly report released by Pitchbook and National Venture Capital Association on Wednesday, mega-deals — defined as investments of $100 million or more — are on track to reach an all time high in 2019, as of September.
But more interesting is its parallel finding that angel and seed funding, typically a startup's earliest influx of outside cash, is also on track to set new records this year.
The report found that the average angel and seed deal in 2019 hovered around $2 million. For comparison, the report said, deals valued at under $1 million comprised more than 60% of angel and seed deals 5 years ago. Through September, that percentage had shifted, with more than half being valued at over that mark.
"The venture industry has gone through many shifts in recent years; it can be argued that the angel & seed stage has seen the most drastic divergence from past investment theses, rendering the classic definition of 'seed' outdated," the report said.
Partly to blame are investors themselves, the report found, because they expect companies to be farther along in their development at earlier stages. What used to be considered a Series A-startup, with a minimum viable product and a growing team, now is considered a seed round, the report argued.
But the looming presence of SoftBank's massive Vision Fund is another driving force behind the record-breaking early funding. The $100 billion fund has started dabbling in early-stage investing in addition to taking major stakes in startups like WeWork, and early investors are starting to feel the pressure as they compete with that kind of cash.
"I guarantee you for every company out there, there's an investor who is interested in it," Austin-based BuildGroup general partner Klee Kleber told Business Insider.
Although BuildGroup is somewhat insulated from the deal-making craze in Silicon Valley, Kleber said it wasn't unusual for the hype to make its way to Texas and other fast-growing tech hubs. This puts smaller firms and smaller ecosystems at a disadvantage because they simply cannot compete with the massive injections of cash coming from the east and west coasts, especially in the earliest stages of a company's lifecycle, he said.