Supergiant seed rounds are still on the rise

In the plant kingdom, we generally think of a seed as something small. In reality, however, dimensions vary enormously, from dust speck-sized orchid seeds to coconut palm seeds that can weigh more than 50 pounds.

The same can be said for the initial investment in early stage. While we might think of a typical investment as a couple of million dollars, round sizes classified as seeds range from tens of thousands to hundreds of millions.

That said, the rise of really big seed rounds is mostly a recent phenomenon. The numbers have grown particularly sharply in the past two years, coinciding with a sharp rise in overall risk investing.

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“The main driver has been more and more capital coming to the seed stage,” said Eugene Zhang, a founding partner of TSVC, a Silicon Valley-based company that has been making seed investments for the past 11 years. During that time, valuations have multiplied several times over, meaning it simply costs more for a significant stake in an up-and-coming startup.

Using data from Crunchbase, we analyzed the rise of so-called supergiant seed rounds (investments of $10 million and above) over the last eight years.

These rounds are clearly on the rise in the US, with 2022 trending higher even amid a pullback in overall risk investing:

Sometimes self-funded companies raise big rounds classified as seeds, even though they have been around for a while.

To correct this, we made another chart looking only at seed rounds for companies founded no more than three calendar years before the deal closed. The numbers are somewhat lower, but the trend lines remain pretty much the same:

The companies generating these supergiant seed rounds are a diverse group representing a wide range of industries and geographies.

Where the big seeds have gone

This year’s biggest seed deal went to Yuga Labs, the NFT platform known for its Bored Ape Yacht Club collection. The Miami-based company raised an impressive $450 million round in March, less than two years after it was founded.

Among the other major rounds, we see a wide mix of sectors, including financial technology, employee benefits, pet care, crypto, space technology, mental health, drug discovery and many more.

Some of the seed round inflation is likely due to increased activity at this stage from deep-pocketed emerging investors known for backing big deals. Tiger Global, for example, which ranks as the top spending apparent emerging investor this year, has made 18 seed deals globally by 2022, according to Crunchbase data. Andreessen Horowitz has made about a dozen this year.

In virtually the entire universe of seed investors, the checks are getting bigger. When TSVC started about a decade ago, the size of a typical first check was between $500,000 and $1 million, with a valuation of less than $5 million.

Now TSVC managing partner Spencer Greene said the usual first check is $2 million to $5 million, with a valuation of $6 million to $29 million.

a fine line

As round seed sizes approach the levels associated with Series A, the two stages can blur a bit.

There are some distinctions, however. Typically, an initial offering is made as a convertible note and a Series A as a priced round, Greene says, although there may be exceptions. In Series A, it is also common to expect a company to have a “repeatable go-to-market formula”, which is not the case with seeds.

Since the seed is the stage where they can get the highest multiple returns on a successful investment, it is not surprising to see more multi-stage investors looking to get in at the earliest point.

Additionally, with cloud storage, low-code development tools, and a panoply of SaaS apps and tools to manage and scale operations, it could be argued that startups can get off the ground much faster than in the past.

But with higher potential returns comes higher risk. Historically, most seed-funded companies fail and investors make their profits from the few that prevail. While placing larger bets in the earliest stages of a company’s formation doesn’t necessarily improve those odds, it does leave a larger sum to lose.

Illustration: Dom Guzman

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