Raising Series A funding has become increasingly challenging in the current venture capital landscape. According to recent research from Carta, for companies that raised their seed rounds in H1 2022, only 13% have made it to Series A across six industries. This is significantly down on prior years.

What once seemed like a predictable progression from seed funding to Series A has transformed into a complex and uncertain journey. In the article below, written by the team at Déjà Partners, we examine the evolving criteria for Series A funding, the impacts of recent economic shifts, and provide insights into why many startups are struggling to secure this crucial round of investment.

Historical Context and Previous Benchmarks

According to Carta, in a ‘normal’ year such as 2018, approximately 20-24% of startups that raised seed funding would successfully advance to their Series A round within 24 months or less. This relatively smooth transition was driven by a combination of robust market conditions, lower investor expectations, and a strong appetite for risk among venture capitalists.

Current Landscape

Fast forward to today, the landscape has shifted dramatically. Recent data from Carta indicates that the number of startups successfully raising Series A funding has significantly decreased versus prior years. This stark decrease highlights the increasing difficulty faced by early-stage startups in meeting the heightened expectations of investors. Investors now demand more substantial proof of traction, revenue, and growth potential from startups seeking Series A funding.

Definition and Characteristics of Series A Funding

Before we delve further, it is important to understand what constitutes a Series A Funding.

  1. Purpose:
  • Product Development: Funds are used to refine and enhance the product or service, addressing any issues and improving features based on validated user feedback.
  • Market Expansion: The capital helps in expanding market reach, increasing sales, and marketing efforts to grow the user base.
  • Team Building: Hiring key personnel, especially in sales, marketing, and development, to support growth and operational scaling.
  1. Amount Raised:
  • The amount typically ranges from $2 million to $15 million, though this can vary based on the industry, location, and specific needs of the startup.
  1. Valuation:
  • Series A rounds usually come with valuations ranging from $10 million to $30 million, though these figures can be higher depending on the startup’s traction and market potential.
  1. Investors:
  • Series A investors are usually venture capital firms that specialise in early-stage investments. They may also include angel investors, but VCs often lead the round.
  1. Equity Stake:
  • Investors typically receive equity in the company in exchange for their investment, through a priced round, resulting in a dilution of the founders’ ownership stake. This stake can range from 10% to 30%, depending on the deal parameters.
  1. Milestones: Startups seeking Series A funding are generally expected to have achieved significant milestones, such as:
  • Product-Market Fit: Evidence that the product or service meets a significant market demand.
  • Early Traction: Demonstrable user growth, engagement metrics, and early revenue.
  • Business Model Validation: A clear business model with the potential for scalability and profitability.
  • Customer Validation: Positive feedback and initial contracts or commitments from key customers.
  1. Due Diligence:
  • VCs conduct thorough due diligence, including an assessment of the startup’s financials, market opportunity, competitive landscape, technology and team.

What is Currently Happening with Series A?

The post-COVID economic landscape has presented additional challenges for raising Series A investment, particularly due to the increased cost of capital, the need for VCs to manage and support existing portfolio companies, and a shift towards more sustainable and profitable business models. Startups need to adapt to these new realities by demonstrating strong fundamentals, realistic valuations, and a clear path to profitability to attract investment.

Here are some specific reasons why the current economic landscape has impacted Series A funding:

  1. Increased Cost of Capital: After the pandemic, interest rates rose as central banks aimed to curb inflation. Higher interest rates make borrowing more expensive and can lead to a more cautious investment approach. VCs have become more conservative, focusing on preserving capital and ensuring returns rather than taking risks on new investments.
  2. Portfolio Reassessment: Many VCs invested at high, or very high, valuations during the pre-pandemic and pandemic boom periods. With market corrections, these high valuations have often led to a mismatch between the perceived and actual value of portfolio companies. VCs need to devote time and resources to support struggling companies in their portfolio, stabilise their investments, and adjust valuations to more realistic levels.
  3. Market Corrections: The post-COVID period has seen significant market corrections, particularly in the tech sector. This has led to a re-evaluation of the market potential and growth prospects of many startups, making VCs more selective and cautious about new investments.
  4. Funding Crunch: With the need to allocate resources to existing portfolio companies, there is less capital available for new investments. VCs might prioritise follow-on funding for companies that show potential for recovery or growth over new Series A investments.
  5. Focus on Profitability and Sustainability: The emphasis has shifted from growth-at-all-costs to sustainable and profitable business models. Startups now need to demonstrate a clear path to profitability and efficient use of capital, which raises the bar for Series A funding.
  6. Reduced Liquidity: Reduced IPO activity, a dearth of acquisitions and increased regulatory scrutiny on competition grounds, have decreased the liquidity options for VCs. This impacts their ability to realise returns on investments and capital returns to the fund’s Limited Partners, making them more cautious about deploying new capital.
  7. Risk Aversion: The economic uncertainty post-COVID has increased overall risk aversion. VCs are more likely to invest in companies with proven business models, clear competitive advantages, and strong market traction, making it harder for early-stage startups to raise Series A funds.
  8. Shift in Investment Focus: There has been a shift in investment focus towards sectors that have proven resilient or gained importance following the pandemic such as Generative AI. Startups outside these sectors may find it more challenging to attract Series A investment.
  9. Valuation Adjustments: Startups seeking Series A funding might face downward pressure on valuations compared to the pre-pandemic era. This can lead to longer negotiation processes and more stringent investment terms.

Pessimistic Perspective

From a pessimistic viewpoint, the increased difficulty in securing Series A funding suggests that many startups will struggle to survive. Bridge rounds and follow-on SAFEs may provide temporary relief. However, without meeting the higher requirements demanded by investors, many startups are likely to limp on or shut down after exhausting their extended lifelines.

Optimistic Perspective

On the other hand, an optimistic perspective posits that startups which raised seed funding in early 2022 are becoming more efficient and resilient. These companies may not yet be ready for Series A funding but are continuing to improve their fundamentals. With time, they might achieve the necessary milestones and demonstrate the growth potential needed to attract Series A investors.


The journey from seed funding to Series A has undoubtedly become more arduous. The combination of increased cost of capital, more stringent investment criteria, and the need for VCs to focus on their existing portfolios has created a challenging environment for early-stage startups. However, those that can adapt to these new realities by demonstrating strong fundamentals, market validation, and a clear path to profitability stand a better chance of securing the elusive Series A funding. The road may be tough, but for those who persevere, the rewards can be significant!

Thanks for reading.

How We Help Entrepreneurs

Our mission at Déjà Partners is to empower and support the best entrepreneurs and early stage companies. We understand the challenges and risks involved in starting a new business from scratch and are dedicated to providing mentorship, guidance, and support to help you succeed. Our services are offered on a pro bono basis, meaning there’s no upfront financial cost to you. Our philosophy of alignment of interests mandates that our ultimate compensation is tied to the success of the startup company through an allocation of stock options.

We begin by working closely with you to prepare for a successful fundraising with institutional investors or debt providers. Drawing on our wealth of experience in building businesses, we provide valuable insights and feedback to help you refine your business plan and pitch. With our guidance, you’ll be well-positioned to attract the right investors and secure the funding you need to bring your vision to life.

But our support doesn’t end there. We’re committed to helping you navigate the challenges of scaling your business to create value and achieve your goals over the long-term. As seasoned entrepreneurs ourselves, we understand the highs and lows of building a business and can provide valuable advice and support along the way. Our goal is to help you mitigate against the prospect of failure so that you can approach your business journey with growing confidence and optimism.

At Déjà Partners, we’re passionate about helping entrepreneurs turn their visions into successful businesses. Contact us today to learn more about how we can help you achieve your goals.