Fenwick & West’s annual seed financing study found that the Series A crunch has worsened. The survey found that 45% of companies receiving seed funding in 2010 raised a Series A funding by the end of 2011. But only 27% of companies receiving seed funding in 2011 had raised a Series A funding by the end of 2012. What’s more, nearly a quarter of companies funded in 2011 raised follow-on seed financing compared with just 12% the year before.
Fenwick & West Releases 2012 Internet/Digital Media and Software Industries Seed Financing Survey Showing Strong Valuations, but Decline in Percentage Obtaining Series A Financing
MOUNTAIN VIEW, Calif., March 25, 2013 /PRNewswire/ — Fenwick & West LLP, one of the nation’s preeminent law firms providing comprehensive legal services to high technology and life science clients, today released its 2012 Seed Financing Survey.
The survey covers 61 internet/digital media and software companies that raised seed financing in the Silicon Valley or Seattle markets in 2012. For purposes of the survey, a “seed financing” is the first round of financing of a company in which it raised between $250,000 and $2.5 million and is led by a professional investor.
“This is our third annual Seed Financing Survey. We began publishing the survey in 2011 in response to the increased amount and importance of seed investment in the entrepreneurial community. This third survey finds that valuations of seed equity financings in the internet/digital media and software industries have continued to increase, from an average of $3.2 million in 2010 to $3.8 million in 2011 to $4.6 million in 2012, and discusses the continued growth and institutionalization of seed financing,” said Barry Kramer, co-author of the survey and a partner in the Fenwick & West Start-ups & Venture Capital Group.
Some of the results of the survey are as follows:
- While 45% of companies receiving seed funding in 2010 had obtained Series A funding by the end of the following year (2011), only 27% of companies receiving seed funding in 2011 had received Series A funding by the end of the following year (2012).
- The use of a preferred stock structure, as opposed to a convertible debt structure, increased from 59% in 2011 to 67% in 2012.
- The percentage of seed deals led by venture capitalists, as opposed to seed funds or angels, increased from 27% in 2011 to 34% in 2012.
- The percentage of software companies in the survey increased from 25% in 2011 to 34% in 2012, and accordingly the percentage of internet/digital media companies decreased from 75% to 66%.
“These results show a continued strong and diverse seed stage financing environment in the internet/digital media and software industries,” said Steve Levine, co-author of the survey and also a partner in the Fenwick & West Start-ups & Venture Capital Group. “However, the decreased percentage of seed funded companies that had received Series A investment by the end of the following year emphasizes the importance of companies demonstrating traction with the seed investment they receive, in order to obtain Series A funding.”
Complete results of the survey are available at www.fenwick.com/seedsurvey.
About Fenwick & West
Established in 1972, Fenwick & West LLP is one of the nation’s preeminent law firms with extensive expertise in venture capital, public offerings and other corporate finance, joint ventures, M&A and strategic relationships, intellectual property, litigation and dispute resolution, taxation, antitrust and employment and labor law.