Seed and Early Stage Deal Size is Falling, Says AngelList’s Ravikant

The average seed and early-stage deal is falling in size, and this probably isn’t bad for the venture business.

So says AngelList co-founder Naval Ravikant, who offered his deal pricing forecast during on-stage interview on Wednesday at the 500 Startups Demo Day in Silicon Valley.

Investors need to redefine seed and Series A deals to adjust for the shrinking costs of starting companies, he said.

Traditionally, Series A deals of the past could run between $3 million and $5 million. Today, firms such as Michael Dearing’s Harrison Metal are doing transactions at $500,000 to $1 million, Ravikant said.

Similarly, seed deals typically ran $250,000 to $1 million in size before, perhaps averaging $400,000. The new seed deal could drop to somewhere near $250,000, suggested Ravikant.

Trying to sidestep the term “Series A crunch,” Ravikant acknowledged that not enough follow-on funding opportunities exist to accommodate the swarm of seed companies created in the past couple years. Many of the less successful startups should have the opportunity to bootstrap themselves rather than fold up, he said.

And yet there doesn’t appear to be a slowdown in the number of companies being created. About 100 new companies come on AngelList each day, with each week 15 to 20 high-quality opportunities. “That is an insane flood,” he said even as “the investors have definitely pulled back.”

As to what is next in venture, he said gaming and social networking are two sectors investors shy away from, while enterprise software companies with customers are hot. So are hardware startups. The low-cost revolution is coming to hardware, he said.

Photo courtesy of Shutterstock.

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