Archive

Click to enlarge

Seed startups fail all the time.

But here's the thing: so do Series A and Series B startups.

Data below shows what percent of startups in each stage get to the next stage after 2 years. Date on the X axis reflects the quarter when the initial round was raised.

Yes, I realize startups can graduate to the next round in years 3, 4, etc. I get it.

But these lines are super close together! Meaning the actual improvement in graduation rates between stages is fairly minimal.

If 50% of seed startups are likely to fail, then maybe 48% of Series A startups will and 45% of Series B startups, etc etc.

Series A and B startups are slightly more likely to get acquired, that's true. But again the percentage difference is low single digits.

All of this is to say:

• VCs - a startup that gets to Series B is still very likely to flop.

• Founders - it doesn't get easier, unfortunately.

• Employees - You need to factor in risk to your startup decision alongside comp.

This stuff ain't easy!

Click to enlarge

For seed VCs looking to benchmark your portfolio - what is a "good" graduation rate to Series A?

It depends on the time since the seed round, of course.

Date below, but big caveat: having a very high graduation rate is cool, for sure. But is it actually good? Or is an 80-90% graduation rate an indication that you didn't take enough risk in the initial investment pool?

Worth pondering 🤔

𝗗𝗮𝘁𝗮:

After Year 1

• 5% is low, 10% is med, 20% is high

After Year 2

• 15% is low, 25% is med, 35% is high

After Year 3

• 20% is low, 35% is med, 45% is high

And of course, as is very clear from the color gradients in the chart, the macro matters! It was MUCH harder to graduate from Seed to A in 2023 than it was in 2021 or than it is likely to be this year.

Hope this is a useful guide as you discuss your graduation rate with prospective LPs 🙏

Click to enlarge

Series A to Series B is a major mountain to climb.

Data: 10,562 US startups who raised a Series A from 2018-2025.

𝗕𝗶𝗴 𝗙𝗶𝗻𝗱𝗶𝗻𝗴

• When you raised your Series A really, really matters. The graduation rate fluctuates wildly with the market and that is out of the founders' control.

𝗟𝗶𝘁𝘁𝗹𝗲 𝗙𝗶𝗻𝗱𝗶𝗻𝗴𝘀

• Raising your Series A in 2020 was boom times. 20% got to B within 1 year and 40%(!) got to B within 2 years. Rounds were basically on sale, 2 for 1.

• Raising your Series A in 2022 was hard mode. Only 8% got to B within a year and 10-12% within 2 years. Interest rates matter, it turns out.

• Raising your Series A in 2024 was not easy, but improving. 11% graduating in 1 year, looking like 20% or so by year 2. I'd call this "tough but normal-ish".

In a strong cohort, about half of Series As will go on to raise Series B. The rest will either a) not need any more capital (pretty rare), b) get acquired (rare), or c) struggle on before shutting down (most of them).

This founder thing is anything but easy 🙏

Click to enlarge

Exciting news: more startups are getting over the hump between Seed and Series A.

More specifically, I mean recent seed cohorts are graduating to Series A at a higher clip.

𝗛𝗼𝘄 𝘁𝗼 𝗿𝗲𝗮𝗱 𝘁𝗵𝗲 𝗰𝗵𝗮𝗿𝘁:

• First column is when the startup raised its seed round

• Black dot = percent of the cohort that had gotten to Series A within 12 months (fast)

• Orange dot = percent of the cohort that had gotten to Series A within 24 months

Startups who raised seed in 2020 had really strong tailwinds from the macro environment to fly through early stage rounds.

Startups who raised seed in 2022 had no help from any tailwind.

More recently, seed startups have started to graduate to A at increased pace. I'd bet the 2025 cohorts look even better than the 2024 ones, which were already the best in 3 years.

Venture investors - how does your portfolio compare? LPs do enjoy hearing about strong markup rates, although some argue that you should also have a decently high loss ratio (which indicates you're taking enough wild bets to find the startup outliers).

Click to enlarge

Shhhh don’t tell anyone - but there’s some optimism seeping back into seed startups.

Startups that raised their seed rounds in 2024 are graduating to Series A a bit faster than their counterparts did in 2023. The trend is positive.

But time has almost run out for those that raised their seeds in 2021 and 2022.

𝗖𝗵𝗮𝗿𝘁 𝗘𝘅𝗽𝗹𝗮𝗶𝗻𝗲𝗱

• Each row is a group of companies that raised their seed round in that quarter.

• Each column shows the time elapsed since that seed round.

• Percentages reflect the share of seed companies from that cohort that raised a Series A in that timeframe.

For example: of the startups that raised their seed round in Q1 2021, 32.7% had gone on to raise a Series A in 2 years (Q8 in the columns)

The reduction of green and gold cells, along with the steady march of red and pink into Year 2 and Year 3, make it clear that the boom times of venture fundraising are behind us.

But for the first time in a long time, graduation rates are picking up.

12.9% of seed rounds from Q3 2024 have made it to Series A after 1 year. Best graduation rate for a quarterly cohort since Q3 2021.

Optimism!

On the gloomy side, I'm not hopeful for the seed round companies of 2022. Only ~25% or so have made it to Series A after 3 years. These companies raised just before the AI wave into a downward trending market...really tough to beat the odds.

Last point - what about "seed-strapping"? Those startups that raised a seed round and planned to never raise an A.

1) I don't think that was nearly as common as people think.

2) Many who thought they would seed-strap end up trying to raise more later on.

Startups go through waves. We're at the launch point in another (AI-driven) swell.

#startups #founders #seed