Seed Financing In Decline for Silicon Valley StartUps

Seed stage financing has been on the decline recently. The transactions reached the epitome in mid-2015 according to the collected data and have since declined by approximately 40%. The troubled companies have seen their dollar-backed investments drop by over 24 percent at the same time although it is considered to be less serious.

This slowdown is ironic because more foreign investors and rich individuals are pumping their investment money in seed-stage financing.

Early stage investing is highly critical to technology ecosystem which thrives on risk taking. Infant companies tend to have a challenge of outdoing the more established firms. So if they are not provided enough resources at an early stage of development, they can’t challenge the bigger companies who are listed on the stock market (whose stock prices are today oversold) or the ones who rise and become as successful as Uber, Airbnb and so on. According to Steve Blank, a startup mentor and serial entrepreneur who doubles as a professor at Stamford, start-ups are challenging established company in 21st Century because of two reasons: they are smart and have the capital to take them head on.

In Silicon Valley jargon, angel or seed investors are early stage investors who can be compared to farm teams in sports. They serve to provide early stage mentorship and capital to help the entrepreneurs showcase and popularize their technology and attract even larger investments or maybe listing on the stock market. But this culture has been fading in the recent past. Seed angels completed only 900 deals during the second quarter of this year. According to the report released by PitchBook Inc, a venture capital analyzer based in Seattle, the figure this year was lower compared to 1,100 deals completed in 2016 and another 1,500 deals completed in 2015 around the same time.

Industry analyzers and veteran seed investors give out an array of reasons for this decline.

They blame the drop on inflation and unenthusiastic market involving public offerings and IPO’s on the stock market. The public offering market is an excellent platform for investors to recover their investments and make a profit. Therefore, when it shows no life, seed investors tend to shy away. Following the overly hyped IPOs of firms such as GoPro, Fitbit and LendingClub Corp which never lived to expectations, WallStreet has started a go-slow on new private companies with multi-billion dollar valuation.