Investors are increasingly writing larger checks for early-stage startups, a trend fueled by seasoned entrepreneurs, extended product-market fit cycles, and a maturing venture capital ecosystem. While the overall number of seed funding rounds has decreased, the capital raised per round has surged since 2021, often exceeding $3 million, according to industry experts.
Bigger Seed Rounds for Proven Entrepreneurs
“There are more second-time founders and experienced operators raising capital earlier. Because of their track records, they secure larger investments upfront and bring along previous investors,” said Vivek Pandit, senior partner at McKinsey.
According to a report by Blume Ventures, seed rounds exceeding $3 million now account for 50% of all funding, whereas sub-$1 million rounds have dropped to one-third of their 2017 levels. This shift is driven by the increasing cost of technical talent and the need for startups to achieve more complex milestones before progressing to further rounds.
Extended Product-Market Fit Cycles
“Milestones in various sectors are becoming harder to reach. Additionally, the product-market fit stage requires more validation due to rising technical talent costs,” Pandit added.
Venture capital (VC) firms and family offices investing at the seed stage are now focusing on more mature startups with proof of concept. “Previously, seed funding ranged between $1 million to $2 million, but now it has increased to $5 million,” said Maheshwari, a VC industry expert.
AI’s Role in Expanding Seed Funding
Artificial intelligence (AI) has played a crucial role in increasing seed-stage investments. “Had AI not been there, seed rounds would have followed traditional expectations in terms of size,” said Abhishek Srivastava, general partner at Kae Capital.
The growing preference for experienced entrepreneurs has also made fundraising more challenging for first-time founders. “Second-time founders raise capital quickly, often bypassing traditional fundraising processes,” Maheshwari noted.
Deep-Tech Startups See Larger Initial Investments
Deep-tech startups are particularly benefiting from this trend. “The founders we see today are in their mid-40s to mid-50s. They often contribute their own capital before seeking VC funding, delaying investment rounds until they reach a higher valuation,” said Bhaskar Majumdar, founder and managing partner at Unicorn India Ventures.
Challenges of Larger Funding Rounds
While larger rounds provide startups with a longer runway, they also introduce new challenges. “With bigger funding comes stricter milestone requirements and immediate pressure on founders,” Maheshwari explained.
A key concern is the imbalance between available capital and talent. “Many large funds follow a ‘spray-and-play’ approach, deploying capital across numerous early-stage startups. However, talent absorption at this stage isn’t always proportional to capital availability,” Srivastava observed.
Seed to Series A: Conversion Rates Declining
Despite the influx of capital at the seed stage, conversion rates from seed to Series A are declining. “Typically, 33% to 35% of startups progress from seed to Series A. However, in recent times, this rate has fallen to 20%, making it increasingly difficult for startups to advance,” Srivastava noted.
The Future of Early-Stage Investments
With AI and deep-tech sectors attracting significant investment, valuations for seed-stage companies are rising. “Today, an average seed-stage startup is valued between $60 crore to $80 crore, compared to $30 crore to $40 crore in the past,” Majumdar stated.
As early-stage investment dynamics evolve, seasoned founders are reaping the benefits, while new entrepreneurs face greater hurdles. Investors are prioritizing proven business models and experienced leadership, reshaping the startup funding landscape.
