In the last few years, a number of new companies being formed increased dramatically; so did the number of accredited investors, so called angels. These angels provide seed funding (up to $1mm) to young companies, but for company to truly prosper, grow and hire employees, venture capitalists have to provide infusion of capital in the range of millions of dollars. Unfortunately, venture capital industry is still struggling, so we are all seeing well documented Series A crunch: startups get seed funding, but fail to raise money from venture capital fund which ultimately forces a company to shut down and fail.
It is estimated that less than 20% of seed stage startups will survive Series A crunch. However, we cannot make a blanket statement across all industries, as some sectors will face even worse odds than that. Hence, CB Insights broke down a probability of raising Series A round by sector in their report.
This insight is very important because entrepreneurs have to understand the trends in venture capitalist industry and approach fundraising with appropriate expectations and thorough preparation. Calling venture capitalists lemmings falling off the cliff is not going to change the fact that they do move in sync, that they do put their money to work in sectors they collectively think has the best return on their investment. The data shows us that social network startups came to the party too late as investment has moved on to collaboration and project management startups.
One out of five social network startups will die in Series A crunch
Entrepreneurs focused on gaming, advertising, sales and marketing applications are facing uphill battle as the investing trend in this sector has seen the peek and now only a quarter of startups can hope to secure funding.
Collaboration, Project Management, Customer Relationship Management solutions will thrive in our busy, interconnected world
As people communicate and collaborate with their colleagues all over the world, brining order to chaos is getting increasingly important, so startups that make teams more productive will have an easier time getting Series A round.
Dragana Mendel, a management consultant for startups, small and medium size businesses develops and executes growth strategies for her clients.