If you are building a startup today, it’s likely harder for you to raise money than it was a year ago. New data makes it clear, however, that not every startup stage is feeling the same headwinds.
A Lack of Uniformity in the Startup Fundraising Climate
The lack of uniformity in the startup fundraising climate is not novel. We have seen, variously, a Series A crunch at one point, and a Series B crunch at another. Today, however, we’re seeing something different altogether: A Series C crunch.
What Does This Mean for Startups?
This does not mean that all early-stage rounds are in fine shape or that later venture rounds are healthy. Nearly everywhere you look, there are declines in venture activity that founders must contend with. But new data from Carta indicates that Series C is the current, and real, bottleneck in Venture Land, which affects startups looking to raise funding.
The Series C Round as a Gateway
The Series C round is akin to a gateway to the later startup stages. If the late-stage market is more jammed up than Boston traffic after a stick-bat-and-ball-glove game, why would you put capital to work earlier in the late-stage cycle?
Why Is the Series C Round Hard for Investors?
An active IPO market is critical for healthier Series C activity, as the prospect of an exit would engender more Series D and E rounds from investors looking to get their portfolio companies public. Moreover, the clearing effect of more public offerings would leave more room for startups to kick off their late-stage journeys, as they could be confident that more capital (fewer companies ahead means more venture attention) and an attractive exit timetable are on the cards.
Until we start seeing IPOs regularly again, the Series C round is likely going to be hard for investors to get excited about. Why would you pay more, and at a higher price, to launch a startup into uncertain waters? Since Series C is late-stage-ish, it is also easier to compare startups raising with public companies, whose valuations are in the basement these days.
The Double Whammy
It’s a double whammy, in other words. And since our expected cure for the Series C crunch — lots of IPOs — is far off, this could be the new normal for quarters to come. Not good!
Topics
- Carta
- EC Market Analysis
- EC Newsletter
- EC Venture Capital
- Startups
- The Exchange
- Venture
- Venture Capital
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