The “Series A crunch,” despite its ominous name, is not much more than an observation.
The term refers to the steep fall-off for investments in startups between the seed round and follow-on A or B rounds. There aren’t many large-scale studies to confirm the phenomenon, but one inquiry by a Silicon Valley legal firm looking at funding data found that in 2011 just 27 percent of startups that received seed funding managed to secure A rounds the next year. That’s a 45 percent decrease from the year-earlier period.
What’s causing it?
One theory is that the current investment pool is flooded by early stage investors willing to make small bets on startups. This gives many more nascent companies a chance to take a shot at building a business than there are investors in later rounds.
Another belief, and not necessarily a contradictory one, is that starting a business now doesn’t require as much upfront investment. Fewer companies are seeking Series A rounds because they don’t need them. Yet.
Either way, the investment drop-off weighs heavily on entrepreneurs who know that the easy money up front won’t flow freely for long.
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