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Despite the concerns about a crunch, the reality is that the level of Series A activity is holding steady. At the same time, the number of seed deals have exploded. As a result, the Series A Crunch is nothing more than excessive demand for a limited supply of Series A financing. While the number of startups receiving funding overall declined in 2012, they raised 22% more capital on average and closed 30% faster than in 2011.
According to an analysis published by The Big Data Group and SiSense, the number of Series A deals actually increased in 2012, and those deals closed faster than they did in 2011. However, fewer Series B deals were done in 2012, with 45 more days on average needed to close the deals.Dave The Big Data Group reports, “It’s more of a Series B crunch than a Series A crunch.”
The “Series A Crunch” myth boils down to supply and demand; with a fixed number of Series A investments to go around and a lot more entrepreneurs fighting for them, many will go unfunded. It’s not that there is less funding (supply), there are just more entrepreneurs (demand), causing those who do not find funding to blame it on a mythical “crunch.”