In Q4, competition heats up as more dollars chase fewer seed deals
In a year that held no shortage of dramatic twists and turns on the national and international stages, NYC’s seed market came to its own interesting conclusion. In Q4, the city saw just 26 seed deals, a figure down 33% from Q3 and 38% from this time last year. Despite this drop, however, total funding came in at a healthy $53 million, increasing average check size to $2 million - up 11% over last quarter, and 25% over Q4 2016.
Fewer deals at heftier price tags is a trend we’ve observed over the course of the last year - and that’s true not just in New York, but across the country, as well. While total seed deal count in NYC has retreated from its 2015 peak, the city has continued to witness high levels of invested capital. The impact of that growing investment can be seen in steadily rising average deal size since 2012, as illustrated in the graph below.
The end of the year also saw constriction in the range of deal size. Almost two-thirds of Q4 financings came in the form of $1-$2.5MM checks, with only one company having raised a round below $1MM. This is in contrast to the first three quarters of 2017 that exhibited greater diversity of investment size.
Seed is the new A
It’s interesting to note the shift in common parlance when it comes to early-stage investing. Compared to the more typical $500K-900K seed deal range of just a few years ago, today’s $2MM average seed round looks more like the smaller end of the traditional Series A market of 10 years ago. There are a few factors that play into this shift. Perhaps most notable is the healthy VC fundraising that took place over 2016 and 2017, which has left investors with plenty of cash on hand. Moreover, many seed investors have replaced the earlier “spray and pray” approach with a more targeted, data-driven investment strategy focused on high-conviction companies that can really prove their worth. And importantly, as Series A investors have continued to move the goalposts on the metrics required for a larger Series A, seed syndicates appear to be prioritizing building longer runways before their companies need to raise that A round.
So where does this leave us for the coming year? More dollars chasing fewer opportunities will continue to drive up competition among investors vying for their share of the most promising pies. Simultaneously, it puts pressure on founders to step up their game and demonstrate a clear path to profitability as they seek larger seed rounds from an increasingly sophisticated and choosy investor base.
The Primary NYC Seed Deal Report covers all NYC seed deals - which we define as $250K-$3.5MM - that have been publicly announced in each quarter. Data is sourced from Crunchbase and Primary Venture Partners research. If you know of any deals that we’ve missed in this report, please contact us at firstname.lastname@example.org!
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Primary NYC Seed Deal Report: Q4 2017