Market Snapshot📸

Pre-seed and seed market highlights from the latest Pitchbook and Carta reports

February 28, 2024 • Reading Time: 10 minutes

The Latest

Tracking private market activity is tough.

The good news is, I’ve done the work so you don’t have to.

Today, I break down the latest PitchBook and Carta market reports with a specific eye towards the state of pre-seed and seed activity.

The Observer Express

Don’t have time to read the entire post right now? No worries, here are the main points:

  1. Total pre-seed and seed investment volume and value are down from 2022 highs.

  2. Seed valuations are still high, and appear to be insulated from the broader venture market.

  3. The average seed deal size is higher than I expected ($3.3M - $4.4M).

assorted numbers printed on wall

Benchmarks

Every day, business news outlets report on the movement of 3 major stock indices: the S&P, DOW, and NASDAQ.

Why?

Because these 3 indexes each represent a multitude of individual companies, their movement serves as a benchmark for the market as a whole.

For example, by tracking the performance of one stock against the S&P I can approximate how that company performs relative to the market. (This is the essence of a fascinating finance term called beta.)

But these 3 indices only track publicly traded companies.

That begs the question: how do we benchmark activity in private markets?

We have to work a little harder.

Special Opportunity for Readers of the Diligent Observer

Interested in plugging into the Texas angel investing scene? Join the Aggie Angel Network’s Texas Startup Showcase on March 22 from 10 am - 12 pm CT and consider 4 exciting Texas-based angel investment opportunities. Membership is normally required ($1,750 per year), but this special event is available at no charge.

Methodology

This week, I reviewed two market reports: the PitchBook-NVCA Q4 2023 Venture Monitor and the Carta State of Private Markets: Q4 and 2023 in Review. Both are available for free if you’re interested in digging deeper.

Why these two reports?

Pitchbook (by Morningstar) is a leading data resource for private capital markets. We’ve been a customer since day one of PitchFact’s existence, and use their data every day to run competitive analysis, compare round sizes, and much more. At the pre-seed and seed stages, they do a great job compiling data on priced round activity and boast the widest dataset I know of, but are somewhat less reliable when it comes to convertible instruments like SAFEs.

Carta has something like 88% market share on cap table software (see last week’s article on the importance of cap tables), and does a fantastic job reporting on the market activity they’re seeing daily in the cap tables they manage. Their dataset is more focused and is richer when it comes to convertible instruments.

Both of these reports focus on overall market activity and performance during Q4 and 2023 as a whole, just from different datasets.

There’s likely some noise in the data, which I won’t fully break down today, but taken together I believe these two resources provide a fairly holistic view of the early-stage market.

Takeaways

Here are the three primary takeaways I came away with after reviewing both reports:

#1: Total pre-seed and seed investment volume and value are down from 2022 highs. 

As you can see from this quick comparison table I put together, it’s clear that total investment value is down between 35% - 40%, and deal volume is down by anywhere from 21% to 36% relative to 2022 highs. It’s worth noting that the Carta dataset, which does not explicitly define or include pre-seed activity, appears to capture about half the size of PitchBook’s dataset.

#2: Seed valuations are still high, and appear to be insulated from the broader venture market. 

The median seed valuation for 2023 was between $12M to $12.5M, as shown in the second quick comparison table I put together above. This remains similar to 2022 levels, which is surprising given the dramatic reduction in volume and value of investment at this stage discussed in takeaway #1. Both reports suggested that early-stage activity appears to be insulated from the downturn in volume observed at later stages (Series B+).

The reports propose (and I agree) that this is likely due to 3 reasons:

  1. Increasing institutional interest in the earliest stages.

  2. Increasing focus on due diligence and the concurrent preferential focus (and competition) of dollars for the strongest founders and opportunities.

  3. Early-stage deals by nature require more time to exit than later-stage opportunities and are therefore less affected by public market volatility.

#3: Average seed deal size is higher than I expected ($3.3M - $4.4M). 

In my experience, any seed round over $2M - $2.5M “feels” large. Perhaps that’s a result of the deals that happen to have hit my desk, but both reports highlighted the average seed deal size during 2023 was between $3.25M (calculated from Carta seed round activity chart) and $4.4M (PitchBook range of US seed deal values chart).

Secondary Takeaways (Report Specific)

PitchBook 

  1. Median Pre-money Valuations for pre-seed and seed deals in 2023 were $5.7 million and $12.0 million, respectively.

  2. Pre-Seed deal sizes ranged from $200K (25th percentile) to $1.5M, with an average of $1.3M and a median of $600K.

  3. Seed deal sizes ranged from $1.5M (25th percentile) to $5.4M, with an average of $4.4M and a median of $3.0M.

  4. Securing a large investor (has raised at least one $500M+ fund) during a seed round increases the odds of raising a subsequent round by 10% (from 62% to 72%).

Carta

  1. Investor-friendly deal terms such as multipliers, participation rights, and cumulative dividends did appear more frequently in 2023, but most rounds are still “simple”. Less than 10% of transactions included some kind of structured deal term like this.

  2. The time between seed and series A rounds has increased by about 18% since the start of 2022. At the beginning of 2022, the average time between closing a priced seed and priced series A was roughly 700 days and the median was roughly 550 days. By the end of 2023, the average has increased to 831 days (an 18.7% increase) and the median to 649 days (an 18% increase).

  3. Startup shutdowns increased by 65%. In 2022, Carta reported that 467 companies on their platform shut down due to bankruptcy or dissolution. In 2023, that number increased to 770, a 64.9% increase.

Final Thoughts

Understanding what “normal” looks like is essential for early-stage investors to be effective in their decision-making. I enjoyed digesting these reports and forming the insights I shared, and hope you find use in them as well.

What do you think?

What stood out to you from these reports? Any takeaways that I missed?

Weekly Observations: 3 Lessons Learned

  1. I need wise counselors to help me focus and not overcomplicate stuff.🔍I’ve probably written about this lesson learned a half dozen times over the last year, but I’m continually grateful for wise outside voices speaking into our business. I tend to overcomplicate things and get stuck in the weeds. I waste a lot of time doing this. To anyone who’s ever told me I’m doing something dumb and helped me focus on what’s actually important - thank you.

  2. Compliments and feedback are so meaningful.📢This week our team crushed a set of 4 diligence reports, and we received no fewer than a dozen compliments from investors about how helpful they were. Let me tell you, positive feedback is just the best, especially when there’s a team to pass that feedback along to. It helps make the hard work all worth it.

  3. Hiring a good offshore admin/VA is harder than I thought.👂Of the several roles we filled over the last few months, I expected this one to be the easiest. Contrary to that expectation, I’ve struggled here more than anywhere else. If anyone’s got wisdom to share on hiring part-time offshore VAs, send it my way - I’m all ears!

Weekly Links: 3 Things I Found Interesting

  1. 34 questions for LPs to use when evaluating a fund manager (link)👨‍💼

  2. “Things I don’t know about AI” from Elad Gil (link)🤖

  3. Can Copilot actually do the stuff MSFT’s ad suggested it could? (link)💻

Thanks for reading, have a great week.

-Andrew

Special Opportunity for Readers of the Diligent Observer

Interested in plugging into the Texas angel investing scene? Join the Aggie Angel Network’s Texas Startup Showcase on March 22 from 10 am - 12 pm CT and consider 4 exciting Texas-based angel investment opportunities. Membership is normally required ($1,750 per year), but this special event is available at no charge.

If you enjoyed this post, please share it with a friend, colleague, or anyone else who may benefit.

P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.

How did I do this week?

About Me

I cultivate flourishing.

I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.