Revealed: Startup's Hidden Battle to Secure Series A Funding

A study reveals that less than one-third of startups receiving seed funding successfully secure a "Series A" round. However, once a startup successfully attracts Series A funding, its chances of raising subsequent rounds of capital significantly improve.

Swati Dayal
26 Jun 2023
Funding Myth

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Less than one-third of startups that attract seed funding are able to secure follow-on funding in the form of a "Series A" round, a recent study conducted by Venture Intelligence, a leading provider of data on private company financials, transactions, and valuations reveals. 

The study, titled "Series A Landscape Report," examined the data of over 2,500 startups that had raised seed funding between 2015 and 2022, and found that only 29% of these companies (734 in total) managed to raise a Series A round, which is typically the first round of institutional Venture Capital (VC) funding.

Funding Challenges for Startups to Secure Series A Funds

“The study highlights how the Indian Early Stage funding ecosystem has matured tremendously in recent years. Despite the current slowdown, the number of funding options available to startups in the Early Stage is much richer compared to even three years back,” noted Arun Natarajan, Founder of Venture Intelligence

“We hope the report also helps discerning founders in choosing the types of VC investors they could partner with at each stage to increase the odds of their startups’ success,” he added.

Improved Success Rate for Startups with Series A Funding

The study also found that once a startup successfully attracts a Series A round, its likelihood of raising subsequent rounds of capital improves significantly. For example, among the companies that raised a Series A during the study period, 50% went on to secure a Series B round. Furthermore, of the startups that attracted a Series B round, 62% were successful in obtaining a Series C round. Impressively, 70% of the Series C funded companies managed to raise rounds that were Series D and beyond. It's worth noting that the study provides an 18-month window for a company to raise the subsequent round.

Steady Growth in Series A Investments

The study examined that the growth trends in Series A investments over a five-year period from 2017 to 2022. Despite the onset of a funding slowdown in 2022, the number of Series A investments during that year (289) increased by 7% compared to 2021 (which saw 269 investments), and was 30% higher than the average of 224 deals recorded in the previous seven years.

Series A Deals as an Ecosystem Indicator

Ganapathy Venugopal, CEO of Axilor Ventures, emphasized the significance of the total number of Series A deals as a barometer of the ecosystem's maturity and a leading indicator for the scale and quality of companies being built. 

He said the "Series A Landscape Report" by Venture Intelligence provides valuable and credible data on an important aspect of the VC ecosystem.

Highlights of Series A Funding Data from the Study

  • 289 companies raised Series A investments during 2022. The numbers rose by 7% from 269

    companies in 2021.
  • The number of companies raising a Series A round grew at a CAGR of 8% in the five-year period

    from 2017 to 2022 (199 to 289).
  • The 2016–2022 period witnessed 224 companies raising a Series A round on average every year.
  • Tech & Tech-enabled businesses contributed to over 71% of Series A investments in the 2016–

    2022 period. Additionally, the distribution of Series A investments was evenly split between

    Business-to-business (B2B) and Consumer-facing businesses (B2C).
  • Startups from Bangalore were the most favoured by investors during the 2016–2022 period,

    followed by startups from the National Capital Region and Mumbai.

Key Investors in Series A Pipeline Creation

The Venture Intelligence study also highlighted a list of "Series A Pipeline Creators," which consists of investors who make seed investments in startups that have a higher success rate in securing follow-on Series A funding. The list is led by Sequoia Capital India and includes prominent homegrown Venture Capital (VC) firms such as Blume Ventures, Chiratae Ventures, Elevation Capital, and 3ONE4 Capital. Specialist seed VC firms like Axilor Ventures, India Quotient, and Kae Capital also feature prominently in the list.

Sequoia Capital India stands out as the top investor on the list, having backed 54 startups in the seed round that subsequently went on to raise Series A rounds during the four-year period analyzed by Venture Intelligence. Blume Ventures followed closely behind with 31 startups that successfully secured a Series A round. Chiratae Ventures and Accel India supported 21 startups each, while Elevation Capital and 3ONE4 Capital backed 20 and 18 startups, respectively. Specialist seed VC firms, including Axilor Ventures, India Quotient, and Kae Capital, each supported 17 startups that attracted Series A rounds.

  • Sequoia Capital India was the Most Active Series A pipeline creator in the 2019–2022 period, with Seed investmentsin 54 companies that went on to raise a Series A round. 
  • Sequoia was followed by Blume Ventures, which backed 31 companies. 
  • Chiratae Ventures and Accel India completed the top 3, backing 21 companies each.

The study sheds light on the challenging journey that startups face in securing follow-on funding and provides valuable insights into the growth and success rates of companies within the VC ecosystem.

Venture Intelligence, a division of TSJ Media Pvt. Ltd, is the leading provider of data on private company financials, transactions and their valuations