
The number of seed rounds in 2014 fell compared to 2013 - dmor
http://techcrunch.com/2015/01/16/the-seed-bubble-has-popped/?utm_medium=twitter&utm_source=twitterfeed
======
abalone
Except: "Bear in mind that the total dollar amount of money flowing into seed
deals barely declined".

That is a questionable definition of "popping" a bubble.

The article does go on to admit that it's just selectively illustrating the
_number_ of deals, not the _amount invested_ in seed deals, which is actually
still the same in aggregate, and then wishy-washily says it's up to you to
interpret this yourself etc. But since most people don't read too far past the
dramatic chart and the headline, I think it would be fair to say this smacks
of click-baity sensationalism.

~~~
takemikazuchi
And it's equally possible to interpret this data positively. Perhaps VCs are
becoming more selective and concentrating their money on better teams/ideas
instead of casting as wide of a net as possible(I am not saying this is
actually the case). I don't understand why so many journalists try to find
catastrophe in the absence of contrary evidence.

~~~
abalone
That's negative for shitty teams/ideas, but yeah, probably positive for the
health of the ecosystem.

I would apply the "San Francisco Rent Test". Are SF rents still high? Then
Seed Bubble: not popped.

------
sharkweek
Here's a big hairy recap of 2014 venture capital:

[http://blog.pitchbook.com/a-visual-breakdown-of-vc-
in-2014/](http://blog.pitchbook.com/a-visual-breakdown-of-vc-in-2014/)

Nothing on here is alarming at all - look at fundraising, look at how much
money was invested in venture companies, look at valuations, look at capital
exited; all really healthy.

Sure, maybe the "spray and pray" style of seed investment has stopped as VCs
are pickier about early stage companies or prefer to focus on later stage
companies with their portfolios, but that's not necessarily a terrifying sign
of some big bubble popping. It might be harder for a business plan and a
website to get a few hundred thousand dollars circa 1998, but a lot of
promising companies are still getting the money they need to grow.

------
jacquesm
This plays right into YCs hands: seed money is harder to get, but YC is still
open for business. And with the number of deals they fund the remainder of the
seed world is left with what they (incorrectly) perceive as 'second choice',
now that the path to YC is well known.

~~~
fivedogit
This is true. I think what we saw was an accelerator bandwagon. It was truly a
revolutionary mechanism in the VC world and everybody under the sun wanted in
on the action... but there were too many and hardly any of them could
replicate the same results as YC and TS. We knew some of them were going to
die off and now they have.

I fail to see how anybody but the "me too" accelerators lose with this trend
(and they were losing already, obviously). Startup founders shouldn't have
been taking money from them anyway, so the fact that they're dying off just
saves naive founders from making at least this one mistake.

~~~
ewzimm
That's something worth remembering about reading graphs. When you're looking
at the aggregate of a trend, it's worth asking what changes in that aggregate
represent. Sometimes, growth means taking on dead weight. Sometimes recession
means shedding it.

------
eudoxus
That first graph doesn't really show the bursting of a bubble. Yes, the number
of rounds have gone down, but I think an important metric is the amount
raised, which has only slightly decreased. This make it seems like there have
been stricter requirements by seed investors before jumping in.

Which to me sounds like not a bad thing. Ideally we'll get less Yo apps this
way.

~~~
dlevine
The problem I see is that if fewer companies are being funded early-stage
today, then there will be fewer companies around to get later-stage funding
tomorrow. One of the reasons we have so many companies getting later stage
funding right now is that there was so much seed funding a few years back. If
early-stage funding is starting to dry up, that may be a sign of other things
to follow...

------
hnnewguy
Interesting graph. The "bubble" goes parabolic right in 2009, as the financial
system is awash in QE money, searching for yield. Almost textbook.

~~~
gee_totes
QE has nothing to do with VC

~~~
hnnewguy
> _QE has nothing to do with VC_

Sure it does. Easy money is easy money. That goes for you and your mortgage at
historically low rates, or VCs raising capital. When stimulus is occurring,
it's interesting to see where it ends up.

I'm not implying anything nefarious. In fact, I'd say it's working as intended
(or at least expected).

~~~
gee_totes
To make sure we're talking about the same thing; the pink line in the second
graph on the techcrunch article is what you're talking about when "the bubble
goes parabolic".

That pink line represents the number of seed deals completed, not the amount
of money in the system.

Unfortunately, I cannot download the original dataset that Mattermark is
using, but using a dataset from Pricewaterhouse Coopers[1], and data from
FRED[2], I have run some statistical analysis using R.

My results are here: [http://imgur.com/a/eFzs1](http://imgur.com/a/eFzs1)

In short, the only statistical correlation I can find between QE and Seed
capital is a negative one, which would contradict your original hypothesis.

[0][https://medium.com/mattermark-daily/why-is-the-number-of-
see...](https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-
raised-in-q4-2014-down-30-38627517ca4e)

[1][http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistor...](http://www.pwcmoneytree.com/HistoricTrends/CustomQueryHistoricTrend)

[2][http://research.stlouisfed.org/fred2/graph/?id=MBST#](http://research.stlouisfed.org/fred2/graph/?id=MBST#)

~~~
hnnewguy
> _My results are here_

Why would you compare quarterly values of seed money to a cumulative total
(QE) and expect a correlation? They are completely different series. Try doing
a running total for the seed money and the graph will look different. The
first and third graphs don't make sense for this reason.

The second graph is better, and you can see there is some correlation. Did you
test for lags, or do you assume that QE money would flow instantly into the
coffers of institutional investors?

I applaud your effort, but there is more to this analysis than overlaying two
graphs. You need to understand the data.

------
staunch
Most professional investors are sheep. The number and scale of opportunities
in technology is growing incredibly and they're _not_ all doubling down.

It's been almost 10 years and no one has launched a credible competitor to YC.
That's proof of how incredibly weak the industry is.

Where investors are afraid, consumers aren't the least bit deterred. They
don't talk of bubbles. They want cool new stuff that makes their live better
and they're paying for it. The internet has reached critical mass, everyone is
online and has a credit card. Which is why, in the near future, new technology
will mostly come from companies that were funded by crowdfunding, not
professional investors.

~~~
rgbrenner
crowdfunding? really?

Both crowdfunding and VCs fund a tiny portion of the total small businesses
started.

Did you see those charts? The scale is in hundreds.

In the US alone there are millions of small businesses started each year.
Sure, most of those aren't trying to change the world (haven't seen statistics
on that)... but even if it's 0.5% and you exclude all the solo founders, it
would still far out number crowdfunding and VCs by a large margin.

~~~
jsprogrammer
How are the millions funded?

~~~
yen223
Loans, savings, investments from friends and relatives, etc.

------
birken
> And of course there is another possibly — maybe hundreds of startups
> collectively decided to stop announcing their funding rounds?

There is also a much simpler explanation... there is a lag in when seed rounds
happen and when they are announced. The fact that the most recent data point
stands out as a massive outlier is a strong indication of this possibility.
Simple to check as well, we can look at this same plot in 6 months with the
back filled data and see if the conclusion is the same.

Jumping to conclusions for the sake of a headline is fine, that is
Techcrunch's job after all. But for those of you that do data analysis for
your own companies, be careful when jumping to conclusions. If you see a
massive outlier on your graph like this, more often than not it is a data
collection/sampling issue than a giant change in the world. And of course if
you do think it is a giant change in the world, extraordinary claims require
extraordinary evidence. So there shouldn't be a caveat, which if true,
completely disprove the whole conclusion.

~~~
7Figures2Commas
You also need to consider the source of the data. From what I understand, much
of Mattermark's data comes from Crunchbase, and the categories in the
Mattermark chart[1] mirror categories on Crunchbase.

Crunchbase is by no means a comprehensive source of _all_ deals. As an
example, I work with a company that raised a seed round in Q4 2014. Crunchbase
does not have this funding despite the fact that it's public.

For the deals that Crunchbase does have, the categorization can be very
spotty. For instance, you can find $2+ million party rounds with institutional
investors categorized as "Seed" while there are sub $1 million rounds
categorized as "Venture" or even "Series A." There are also oddball categories
like "Debt Financing" and "Convertible Note" which in some cases appear to be
the same thing.

In my mind this is almost certainly a case of garbage in, garbage out.

[1]
[https://tctechcrunch2011.files.wordpress.com/2015/01/screen-...](https://tctechcrunch2011.files.wordpress.com/2015/01/screen-
shot-2015-01-16-at-2-35-10-pm.png?w=680&h=514)

------
Patrick_Devine
We definitely found this out the hard way. We tried to raise $750K for a seed
round and were repeatedly told that our tech/team were great but that we
didn't have enough traction.

It's kinda hard watching people go on about the "bubble" when you're just out
there trying to scrap it out and find something that works.

~~~
trevelyan
YC offers 20k+ for a few percent. Startup Chile is 40k with a co-investment of
around 10k. That money is supposed to support the founders for a few months
while they get the prototype out the door and build traction.

In comparison, 750k is a metric ton of cash, and should be enough to support a
founding team for several years. Not judging, but if you're positioning it as
a seed round instead of Series A that may be part of the problem.

~~~
ScottBurson
BTW, YC now invests $120k in most of their companies:
[http://blog.ycombinator.com/the-new-deal](http://blog.ycombinator.com/the-
new-deal)

~~~
trevelyan
Wow. I didn't know they'd dropped the convertible round. The new arrangement
is a great deal -- more than a $1.7 million valuation for each company
accepted.

------
k__
So bootstrappers are on the rise now?

~~~
fivedogit
Yes and it's going mainstream. Starting a company is so cheap and fast now
that it doesn't even take a team of 2 or 3 anymore. A single person can do it.

There are so many benefits to solo-founding, it's not even funny. Without co-
founders, there's no delay in getting started. There's no drama. The
development cycle is fast and the code can be remarkably clean. Personally, I
make changes to my production code all the time because the whole thing is in
my head and I know what effect my changes will have. (And if I screw something
up, I know how to fix it in minutes, not hours.) With a team, that's simply
not possible.

Investors are going to wake up to this reality soon and accelerators will trip
over each other to claim to be the "accelerator of solo founders".

Corollary to this, MBAs and other non-tech types are screwed in the years to
come. Engineers won't need them anymore. 1. Make a product. 2. Get some
baseline traction. 3. Join an accelerator or raise a seed round, if you need
it. 4. Hire the founding team. 5. Profit.

~~~
jacquesm
One small problem: co-founders make you stronger. You are your own single
point of failure. For many customers that makes you a no-go zone.

~~~
semperfaux
"Co-founders make you stronger" is a questionable generalization. Cofounders
add a lot of things, both positive and negative, and as long as you and (each
of) your cofounder(s) have vital skills/resources that are unique in the
group, you now have _multiple_ "single points of failure."

Yes, cofounders can contribute bandwidth, skills, connections, and all sorts
of other positive things. They can also contribute friction, disagreement, and
various other negative things. It's not a cut and dry benefit.

~~~
getsat
Reminds me of remote working. Some people claim it's bad, some people claim
it's the greatest thing since sliced bread. There's pros and cons to each.
People build successful companies with both methodologies.

------
paulftw
Suppose you got $40-100k from one of the dozens of accelerators and the cost
of running an online business shrinks every year. Is your next raise still
counted as seed or series A? Are successful kickstarter campaigns counted as
seed deals? Should they? Maybe it's not that seed bubble is popping, but there
so many new ways to run a startup that old metrics are no longer relevant.

------
applecore
There's a significant time delay between when seed rounds are closed and when
they're announced, so data for the most recent quarters are almost certainly
incomplete. This leads to the spurious conclusion that the number of seed
rounds declined in 2014.

------
kirillzubovsky
Seed deals decline while total $ spent stays still? Good news IMO. Means VCs
are putting more of their weight into co's they do fund. #win

------
nedwin
I totally misread the graphs. Sorry Danielle!

~~~
lstamour
Did I see the same chart you did? I went back and looked, all I saw was "Q1"
and "Q3" labels while the data showed all four quarters, but only half were
labelled. It /was/ missing a Q4 though at the end.

~~~
dmor
Creator of the graphs and author of the original post (here:
[https://medium.com/mattermark-daily/why-is-the-number-of-
see...](https://medium.com/mattermark-daily/why-is-the-number-of-seed-rounds-
raised-in-q4-2014-down-30-38627517ca4e))

All the quarters from Q1 2005 through Q4 2014 were plotted. The axis labels do
not show all of them due to space constraints. Apologies that this was
confusing, I will make sure to add all the tick marks and labels in the
future.

~~~
lstamour
I don't think you need all, I mean, there were space constraints. This is why
a bar graph can be clearer than a line graph for discrete data though. They
may be boring, but they are often effective at communication. :-) Oh and it's
helpful to label both ends of the graph, from Q1 2005 to Q4 2014, then fill in
what labels you can in the middle. If you'd picked random Qs or even just
every year, perhaps to shade the backgrounds of each year, that might have
made for a more understandable graph. Our fault for misunderstanding it in the
first place, of course... This is also why some places link to tables of data
used in the graph. You could click to view the table if you had any questions
about what you're seeing in the graph. Stephen Few's an accessible read on
this subject.

~~~
dmor
Cool, this is great feedback. I'll check out Stephen Few's work too -- thanks
for reading and caring!

------
user02
"The Seed Bubble Has Popped" has popped.

