Boston-based startup Transmit Security is developing password-less identity solutions. Back in June, it raised an eye-watering $543 million in Series A funding. That’s the largest Series A funding round for a cybersecurity company in history.
To put that in context, it’s more than 500 times the amount of money Microsoft raised in 1981 in its first VC round.
How times have changed, eh?
The amount of venture capital raised by startups in 2021 broke all records. By the end of the 3rd quarter, founders had collected a colossal $240 billion, blowing past 2020’s annual total of $166 billion.
It’s no surprise that tech startups are fueling much of this investment growth. Enterprise software startups account for almost half of all venture capital funding in 2021.
Going into 2022, what should we expect for the average Series A funding round? Is Transmit Security’s record-breaking raise an anomaly or a sign of things to come?
We surveyed three leading sources to get a better picture. These are some of the trends you should be watching, and how big you should expect this year to be.
What is a good series A funding round? There’s not really a simple answer. Different startups have different business models with different funding needs. They follow separate paths to achieve product/market fit, and they develop unique unit economics along the way.
So VCs have different expectations depending on the industry you’re in and what your business model looks like.
Consider a fledgling hardware startup that is gearing up to scale. It’s probably going to require more funding than a SaaS startup of the same size.
The hardware startup needs materials, machinery, logistical systems, and more employees. The SaaS startup just needs more employees.
This doesn’t mean the SaaS company won’t be able to raise plenty of capital. Investments in software can be lucrative, and the possibility of getting in early with the next Salesforce or Shopify might be hard for investors to ignore.
One recent trend in Series A funding is the “mega deal” like the Transmit Security example above. More companies are walking away from their series A round with more than $100 million in venture capital than ever before.
The number of these deals has skyrocketed over the last couple of years. This phenomenon is significantly inflating the size of the average series A funding round.
These mega deals are largely centered around emerging technologies and biotech in the Cambridge area. Obviously, most startups will not see those numbers, but it is worth noting that VCs are favoring big deals.
There has also been an increase in the number of nontraditional investors getting involved in venture capital – and this phenomenon is much more relevant for the typical startup.
Nontraditional investors – often private-equity firms and hedge funds – are now investing more cash in startups than traditional venture capital firms.
There’s also the emergence of angel syndicates, which are allowing individual angels to pool their resources and get involved in bigger deals at the Series A phase.
As you’ll see, the size of the average Series A funding round depends largely on the source. Many publications have tried to calculate the average size, but the results vary widely.
Here are three well-sourced estimates for you to consider:
Methodology
Crunchbase analyzed 2,539 series A rounds raised by U.S. startups between 2018 and January 2020. They segmented data by the amount raised in USD and the location it came from.
Results
Crunchbase found the majority of Series A rounds during this period were less than $9 million. The median series A round in their sample was $8.6 million nationwide.
The highest funding rounds happened in New York City, where the average was around $10 million.
Methodology
Fundz didn’t reveal their specific methodology. However, the company compiles a database of startups worldwide that raise funding from investors.
Results
In a press release dated June 20, 2020, Fundz says the average Series A funding round is now $15.72 million, significantly higher than Crunchbase’s average.
Fundz says this is a “new record,” and this data has been widely cited and quoted by publications including Investopedia.
Methodology
Visible is an investor reporting company used by business founders worldwide, including startup owners. Its figures for Series A funding averages come from data generated by its reporting platform.
Results
Visible says that, as of 2019, the average Series A funding amount was $13 million, which sits somewhere between the Crunchbase and Fundz averages.
They also noted that the average startup valuation that same year was $22 million.
Based on these estimates from Crunchbase, Fundz, and Visible, the average Series A funding round is about $12.9 million.
That’s an enormous amount of money for a startup to work with, but it’s a far cry from Transmit Security’s record-breaking $543 million.
Whether you go with the high estimate from Fundz or the low estimate from Crunchbase, there’s no denying that the amount of capital available to startups is greater than ever, and all trend lines point upwards.
Any startup’s Series A results will depend on their business model, their competitive landscape, and the way they present their ideas and plans to investors.
One of the most important things a startup can do is to develop a working financial model. A financial model demonstrates to investors that your assumptions are based on real data, and that you have a firm grasp on the challenges your business will face and the outcomes it will likely achieve.
Forecastr allows you to build and maintain a great financial model with the help of expert financial analysts. You get a great online model that’s interactive and easy to share.
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