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A few weeks ago, we wrote that startups were running out of cash. Now, every tech site is talking about the “Series A crunch.”
A “Series A” round refers to the first class of stock issued to outside investors—in other words, the first professional venture capital invested in a company after a so-called “seed” round, which often comes in the form of a loan.
It has gotten easier and easier to raise that seed money—which means there are now more companies competing for a pool of Series A money that basicallly hasn’t changed.
Fortune’s Dan Primack pulled some data to show just how tough the investing climate has become for startups.
He had CB Insights pull seed-stage and angel investing data for U.S. tech startups—those amount to the same thing in almost all cases—as well as Series A funding data. Primack found that, while there were roughly the same number of seed/angel deals and Series A deals in 2009, the number of seed/angel deals had skyrocketed from 2009 to 2012. Meanwhile, the number of Series A financings have only increased slightly.
Source: CB Insights
Because every year’s worth of seed deals essentially forms a class of startups that will later “graduate” to raising a Series A round 12 to 18 months later, Primack notes, the real ratio to look at are the seed deals in one year versus the Series A deals in the next.
In the chart above, if you track the numbers down one column and across one row to the right, you’ll see the real ratio at a glance.
In 2011, venture capitalists managed to increase the number of Series A deals they were doing to catch up with the explosion in seed. But now they’ve fallen seriously behind, and the gap is widening.
“We see the gap continuing to grow,” Primack writes. “Series A deals in 2011 represented just 91% of 2010 seed/angel deals, compared to 109% the prior period. That figure dropped to just 65% in 2012, and I would expect the plummet to continue into 2013. After all, the number of seed/angel deals continues to rise and VC fundraising difficulties may mean that Series A commitments have plateaued.”
While the data doesn’t provide every answer, it’s pretty clear that it’s crunch time, and things will only be getting more difficult for startups.