Angel, Seed, and First Financings US Market Overview
During 2021, roughly the same amount of capital was invested in seed deals ($13.1 billion) as was invested in the early stage (Series A and B) during 2011 ($13.8 billion). These figures highlight the massive change the industry has gone through over the past decade-plus. “Seed is the new Series A” has become a common figure of speech around the industry. This simple comparison highlights a simple similarity. Angel and seed deal counts have grown by almost 150% over the past decade. In 2021, these two stages surpassed a combined 5,800 deals for the first time, notching around 6,649 deals by our estimates. That gap alone showcases the busy year that angel and seed-stage investors had. Beyond pure growth, we have seen these markets evolve. During 2021, Andreessen Horowitz raised a $400 million seed fund, and Greylock allocated $500 million to invest in seed deals.
Alongside those large funds, almost 700 different non-traditional investors participated in a seed deal during 2021, a new high-water mark for that statistic and more then 5.8x the number invested in seed a decade ago. At the same time, a record number of micro funds (under $50 million) were raised in 2021, adding to the already high competition at venture’s earliest stages. The increase in competition has pushed already elevated deal sizes and valuations higher over the past year. In 2021, seed pre-money valuations grew to a median of $9.5 million, a 35.7% growth over the previous record high of $7.0 million recorded in both 2019 and 2020. With the record number of smaller funds, we would expect the number of first financings—the initial institutional investment in a company—to show positive growth. For the first time, more than 4,000 companies received their first venture investment during 2021, and $23.8 billion was invested into these deals. Previously, the record high for the number of first financings in a year was 3,704, and the record amount invested was just $15.3 billion.
As we pass the two year mark since the onset of the pandemic, certain trends are coming into focus through data. Miami, which became a relocation destination for VCs and entrepreneurs, has more than doubled the number of first financings in 2021 (129) than it saw in 2020 (57) and easily surpassed the previous annual record of 72 first financings from 2017. Several other smaller markets have seen significant growth in first financings year-over-year (YoY) as well. Austin (46% YoY growth), Phoenix (47.2%), and Philadelphia (43.5%) have seen higher YoY growth in first financings than the Bay Area, New York, Boston, or Los Angeles, the four largest markets in the US in terms of venture activity— though these ecosystems still see the highest absolute numbers of first financings overall. The high volume of capital and interest in early venture investing is meeting a high volume of entrepreneurship in the US. According to the US Census Bureau, 4.4 million businesses were launched in 2020, the highest total it has tracked since the organization began collecting these statistics in 2004. That translates to an increase of more than 50% over the 2010 to 2019 average. This increase in new businesses, while not all targets for VC, should bring a major boost in opportunities for investors. With the surge in opportunities, first financings and the earliest stages of venture will likely continue to see strong growth over the near term.