Seed Investing Bubble Pops

Uncategorized

Having talked about the seed implosion in the summer and fall, this will be our last post on the subject.

Victor Basta at Techcrunch recently published a startling graph showing the seed-stage financing crash. The red line is the number seed-stage deals—and what it shows is the growth and collapse of a bubble.

image002.png

Basta’s article, which is well worth reading, summarizes the hard realities:

  1. App funding is over. “Since 2014, early-stage funding for businesses with “mobile” in their description has fallen off a cliff.”
  2. SaaS startup funding is way down. “With so many SaaS companies having been created in the past 10 years, it’s hard to justify, let alone back, new SaaS startups, which are by now competing against established SaaS players, not legacy perpetual license vendors.”

VC Fred Wilson writes:

Many startup people reinvented themselves as angel investors, AngelListers, seed VCs, and early stage VCs. As I quoted Techcrunch in my tweet “2012-2016 was a bubble in early-stage funding.” I think the bubble actually started letting out air in mid 2015.

You could see all of this in the pricing of seed rounds. For most of my career, seed rounds were sub $1mm and they bought 15-25% of the company ($4-6mm post money). At the peak of the seed bubble, uncapped notes of $3-5mm were the norm for seed rounds. That wasn’t going to work. It was unsustainable.

We’ve long felt that VC was in a bubble. The disintegration of the seed-stage market became obvious to us earlier this year. Part of the problem is that software is now a saturated market. It’s very hard to find a new and exciting thing to launch in 2017. Every nook and cranny is jammed.

The market today favours proven solutions that have happy customers. Seed financing has collapsed.

Postscript: Read Fred Wilson’s blog post on seed funding “valuation inflation,” dated June 3, 2018. Compare today to last summer: what a difference a year makes!


Windigo Bay Group is a merchant bank serving creative, consumer and tech companies. We finance and develop businesses, negotiate new markets, sell and acquire assets, and more. Based in Toronto, our clients are in North America and around the world. Contact us for a private discussion about your needs.