“The idea that you could actually bring automation and more due diligence to the seed stage was not common,” said Holiday.

The co-founders had prior experience that led them to this thesis. Holiday, a software engineer in equities trading at Goldman Sachs, brought those skills to the venture. Okike spent nine years at Insight Partners and saw the value from Insights’s Onsite team supporting portfolio companies with growth efforts.

“One of my learnings [at Insight] was that a really good platform team can be very valuable, not only in winning deals, but helping companies post-investment,” said Okike, referring to the firm’s in-house software developers.

645 Ventures’ first fund was a scrappy $8 million seed round announced in 2014. In late 2022 the firm raised its largest funds ever with $350 million across two;  a $195 million fourth flagship fund and a select fund of $153 million.

Seed- and early-stage venture is a network-driven business. However, what differentiates 645 Ventures is that it has also built its own software to source investments at the seed stage.

On its outbound process, reaching out to companies directly, Okike had this to say.

“We’ve also built the outbound deal-sourcing model. And that’s something that’s pretty unique for our stage,” said Okike. “There are ways for us to show the founder how we can help. And it’s also a way to figure out how good those founders are, because if they go and pitch one of those companies, and it becomes a customer, you have a sense of the quality of the product as well as their sales ability. So it’s informal due diligence.”

The research-focused investment team reviews thousands of companies every month, looking at companies that have traction, often in sectors overlooked by venture.

Getting to A

“We pretty much brought growth-equity practices and due diligence to the early stage — which lowered our loss ratio,” said Holiday.

“We have models around what makes a great founding team or what makes a great market, or what qualities of product you should be looking for with exceptional companies at the seed stage, and we try to quantify that as much as possible,” said Okike.

The firm claims that over 50% of its portfolio investments at seed get to Series A.

“If a bigger percentage of your businesses don’t fail before Series A, you just have more chances to return the fund business over time,” said Okike.

As the market has returned to capital-efficient growth in recent years, several portfolio companies with steady  revenue growth were acquired, said Holiday. These  include real estate management platform Aryeo acquired by Zillow, direct-to-consumer mattress seller Resident by Ashley HomeStore, identity threat company Oort by Cisco, and property intelligence platform Betterview acquired by Nearmap.

Portfolio company FiscalNote, a government data and analytics company, went public via a SPAC listing in August 2022. (Its value is down significantly from its listing of $1.3 billion.)

645 Ventures plans to invest in 30 companies from its fourth fund. Each fund is typically invested over a three- to four-year period, with follow-on over a longer period. For the select fund, 80% will be invested in its best performing companies.

In the past year, 645 Ventures has built out its organization. The firm has 21 team members across its New York and San Francisco office with a combined research and investment team, a success team, an engineering team and investor relations.

“We like to say our model is software systems and human systems working together,” said Okike.

Crunchbase Pro list:

• 645 Ventures Portfolio Companies

Illustration: Dom Guzman

Using Crunchbase data, we set out to track the funding trajectories of these seed- and pre-seed companies, starting with the very AI-centric winter 2024 batch, which wrapped up its demo day in early April. We grouped companies by industry and recorded who has announced funding.  We also looked at which investors are most active in backing these startups.

Although not all of the latest YC companies that raised seed funding have publicly announced it yet, a few have. Those with disclosed investments include a number bringing AI-enabled tools to sectors like legal tech, recruiting, code development and medical recordkeeping. They’ve attracted funding from active seed investors like Pioneer Fund and SV Angel 1, as well as prominent venture capital firms like Benchmark, Khosla Ventures and General Catalyst.

An AI-centric batch

Half of this recently launched batch is building with AI, said Garry Tan, CEO of Y Combinator, in a post announcing its second post-COVID cohort that gathered in person in the Dogpatch neighborhood of San Francisco.

Tan took the helm over a year ago and moved YC up to the city. (He left his firm Initialized Capital, an early-stage firm he co-founded in 2012 with Reddit co-founder Alexis Ohanian.)

Being in-person and in the city has apparently created a stronger community.

“Hundreds of founders are meeting daily for office hours and events, bumping into legendary people, and surrounding themselves with people who will go deep on subjects and celebrate hard work,” said Lindsay Amos, director of communication, via email. “There is no other place in the world with the same density of great startup founders per square mile as the area around the YC office — and this is fostering innovation and growth.”

San Francisco is experiencing a resurgence due to AI, which is borne out by Crunchbase data.

According to  Jared Friedman, YC group partner, these companies skew younger — 30% of the last batch are college students or grads. Two years ago they were around 10%. “Because of AI, it’s the best time in a decade for college students to start startups,” he said.

Enterprise companies still dominate, with more than two-thirds of the companies in enterprise SaaS. Around 11% are consumer oriented — with AI as the driver for many of the consumer offerings.

After the peak of 2021, the size of YC batches have come down. But YC still launches the largest number of companies in a single cohort — 260 companies in the winter batch.

Seed funding

Interacting in person benefits founders and their rate of progress, said Jason Gray, founder of seed investor Pioneer Fund, an active investor in YC companies, via email.

Pioneer has a network of portfolio companies and venture partners that add up to 1,500 YC alumni with relationships to founders either as a friend, former colleague or customer, according to Gray.  This allows for front loading due diligence.

On the common misconception that YC companies raise funding in advance of demo day, Gray said “while it does happen, it’s not the norm.” He added that “many founders focus on traction until demo day and are selective about which investors they allocate to before then.”

YC hosts an investor evening as well as sharing pitches online. “The in-person element does drive some urgency, which we believe is a benefit to both founders and investors,” said Gray. “Minimizing the distraction of fundraising for founders is in everyone’s best interest.”

The median raise, according to YC, is around $1.3 million post-demo day.

Based on an analysis of Crunchbase data, over all time Andreessen Horowitz, Khosla Ventures and Sequoia Capital are the most active multistage investors in YC companies by deal count. On the seed fund side, Liquid 2 Ventures, SV Angel, Pioneer Fund, FundersClub, Soma Capital and Garry Tan’s previous fund Initialized Capital are most active.

Of the winter 2024 cohort, meanwhile, funded companies include:

• Stockholm-based Leya, an AI assistant for lawyers using proprietary data alongside cited legal sources. The company raised a $10.5 million seed led by Benchmark with partner Chetan Puttagunta joining the board. Belgium-based Hummingbird Ventures and SV Angel participated. Leya is working with 70+ European legal firms and has plans to expand to the U.S.
• San Francisco-based Greptile, built an API that uses large language models to answer questions about a company’s code base. It raised a seed funding of $4.1 million led by Initialized Capital.
• San Francisco-based YonedaLabs, built by a team from Cambridge University, is creating a foundation model for chemists which can predict outcomes without having to run costly trials. The company raised a $4 million seed round led by Khosla Ventures with participation from 500 Emerging Europe, 468 Capital and Fellows Fund among others.
• San Francisco-based Pythagora, built by a team from Croatia, raised $4 million to help build apps with  natural-language interactions. The tool is open-sourced and said to be used by 30,000 developers. Investors include Inovo, 500 Emerging Europe, Moonfire Ventures, Rebel Fund and UpHonest Capital.
• Spacecraft software company Basalt Tech, based in San Francisco, raised a $3.5 million seed funding led by Initialized Capital.
• Paris-based Malibou helps small businesses manage payroll and compliance. It raised a $3.1 million seed led by European venture firm Breega.
• San Francisco-based Hona AI, an AI data platform for healthcare records, raised a seed funding of $3 million led by General Catalyst.
• San Francisco-based Apriora, an AI interviewer to screen job candidates, raised $2.8 million led by 1984 Ventures with participation from HOF Capital and Pioneer fund.
• Manifold Freight, a Seattle-based logistics aggregator of spot freight, raised a $2 million seed round from New Stack Ventures and YC. The founders were engineers at digital freight company Convoy which closed last fall.

Related Crunchbase Pro lists and searches

Pro subscribers can export these lists to track progress over time within their Crunchbase Pro accounts.

• Y Combinator Winter 2024 batch tracked here.
• Y Combinator Unicorn Portfolio Companies
• Y Combinator Exited Unicorn Portfolio Companies

Illustration: Dom Guzman

Deal-making volume seems to be slowing in the second quarter — with just a couple of weeks left — compared to other recent quarters, when investors’ appetite showed little to no limits for the all-encompassing technology.

According to Crunchbase data, the number of funding deals is on pace to reach only about 900 this quarter — a seemingly significant drop from the 1,052 last quarter and a decline of nearly 30% from the same quarter last year.

Not surprisingly, it is the earliest funding rounds — angel, seed and early stage — at the root of the deal-making slowdown.

The good news for AI startups is that the dollar amount is up. The second quarter already is pacing to be one of the highest-dollar quarters since early 2022 with more than $16 billion already raised.

That is due in part to some huge rounds. Five raises hit $1 billion or more this quarter — including those by xAI (the biggest one), CoreWeave, Xaira Therapeutics and Scale AI.

Seed funding slows

However, deal volume is seemingly dropping — and that starts in the earliest rounds. Although it is difficult for seed rounds to make a dramatic shift in total dollars of any sector, it is the most likely to show changes in deal flow since it is the largest category by volume of deals.

Only 423 seed/angel rounds were announced through the first week of June, putting it on pace for likely just more than 600 funding rounds. That will be a steep decline from the 779 deals announced last quarter and likely a drop of about a third from Q2 last year.

The dollar amount also is on pace to be down, but again — with seed and angel rounds being small by their very nature — it isn’t a pronounced drop to the overall total of funding AI startups receive.

Total dollar amount for the quarter seems likely to hit between $1.3 billion and $1.4 billion, just a tick below the $1.6 billion in Q1 and the $1.5 billion in Q2 2023.

Early-stage deals stagnate

The number of early-stage deals also slowed. While the quarter is on pace for a similar amount of deals compared to Q1, that is still more than a 15% decline from Q2 last year.

The somewhat good news for early-stage funding is that the dollar amount is up. Already $9.8 billion has been raised in early-stage deals, compared to the $6.4 billion last quarter or the $4.7 billion raised in Q2 last year.

However, even that comes with a large caveat; that difference is mainly due to one round. xAI’s $6 billion round — with investment from the likes of Valor Equity Partners, Andreessen Horowitz and Sequoia Capital — greatly skews the early-stage funding numbers, making up nearly 60% of the total.

What it means

To be honest, it likely is too early to tell if the deal volume slowdown means anything quite yet.

It could mean some investors are becoming less willing to back the youngest AI startups and instead are willing to invest in bigger rounds for somewhat  more proven companies even if the valuations are significantly higher.

In addition, since seed and growth-stage investor mindsets are often different, perhaps AI fatigue is setting in among early investors who are tiring of the story and escalating prices.

One thing to keep in mind is that as early-stage volume ticks down, that could mean fewer companies looking for large growth rounds in the next 18 to 24 months, since some may never have received the early funding when they were young to get to later-stage funding.

Nevertheless, the dollar amount is up and investors still seem eager to pour in billions to nearly anything AI related — just perhaps not in the same number of deals as before.

Methodology

The data contained in this report comes directly from Crunchbase, and is based on reported data. Data reported is as of June 6, 2024. Companies included in the data fall within Crunchbase’s artificial intelligence industry group tag. Some of the decline in deal counts may be attributable to the tendency for smaller, seed-stage rounds to be added to the Crunchbase dataset several weeks or months after they close.

Glossary of funding terms

Seed and angel consists of seed, pre-seed and angel rounds. Crunchbase also includes venture rounds of unknown series, equity crowdfunding and convertible notes at $3 million (USD or as-converted USD equivalent) or less.

Early stage consists of Series A and Series B rounds, as well as other round types. Crunchbase includes venture rounds of unknown series, corporate venture and other rounds above $3 million, and those less than or equal to $15 million.

Late stage consists of Series C, Series D, Series E and later-lettered venture rounds following the “Series [Letter]” naming convention. Also included are venture rounds of unknown series, corporate venture and other rounds above $15 million.

Technology growth is a private-equity round raised by a company that has previously raised a “venture” round. (So basically, any round from the previously defined stages.)

Illustration: Dom Guzman

This is a problem for founders, and investors like Jenny Fielding, managing partner of Everywhere Ventures, who said, “Every Seed investor’s dilemma: All my Series A buddies want to meet my companies early! All my companies are too early for my Series A buddies.”

To attach some data to this, we can see that the median step-up in valuation from seed to Series A has gone from $19.5 million in Q1 2022 to $28.7 million in Q1 2024. Series A firms seem to be looking for much stronger revenue performance, with targets of $2 million to $3 million in ARR, compared to $1 million to $2 million just a few years ago.

The outcome is that while 31.8% of Q1 2020 seed startups closed their Series A within two years, that fell to just 12% for Q1 2022 — which should worry everyone.

Why are Series A investors so much more demanding?

Today’s Series A investors are looking at startups that raised their seed between 2021 and 2023, which identifies the root of the problem: it spans the Q2 2022 high-tide mark for venture capital.

For example, there were 1,695 seed rounds of more than $5 million in 2021, rising to 2,248 in 2022, then falling to 1,521 in 2023. As a comparison, there have been just 137 so far in 2024.

The result is two categories of startups that are looking to raise their Series A today:

• Pre-crunch startups that raised generous seed rounds and stretched the capital out as far as they could, to grow into inflated valuations.
• Post-crunch startups that raised modest seed rounds on more reasonable terms, with shorter runways and less demonstrable growth.
  Strictly speaking, neither is more appealing than the other; the first group has less risk, the second offers more upside, and both are adapted to current market realities. It shouldn’t cause a problem for investors, provided they can distinguish between the two.

The cost of market inefficiency

Venture investors have a market-based lens on investment decisions, which means looking fairly broadly at trends in revenue performance and round pricing to determine terms, e.g. a typical Series A is within certain bounds of revenue performance and valuation. While that approach may be serviceable and efficient under ideal conditions, the past few years have been far from ideal.

Without distinguishing between the two cohorts, investors are now looking at the performance of Series A candidates that spent more than $5 million on a war chest for two to three years of growth alongside the valuations of candidates that raised around $2 million to prove scalability. It just doesn’t work as an average, and thus the unreasonable expectations.

The breaking wave of zero-interest rate madness

Fortunately, it’s temporary. Series A investors are facing this today because of what happened two years ago. Roughly four years from now, it will be the turn of Series B investors to look at an oddly divergent class of startups. In six years, as it hits Series C investors, the ripples should be hard to detect.

What frustrates many is that this is a mostly avoidable phenomenon. Yes, the venture asset class is cyclical, but venture investors do not need to lean into those cycles with maddeningly procyclical behavior. Roughly as many startups have shut down in Q1 2024 as in the whole of 2020. Companies closed. Jobs lost. Dreams ended. And it’s not because of rising interest rates, but rather because of how venture investors acted when rates were low.

 Dan Gray, a frequent guest author for Crunchbase News, is the head of insights at Equidam, a platform for startup valuation, and a venture partner at Social Impact Capital.

School is nearly out and summer’s almost here. A lot is going on in most people’s lives, so let’s take a look at a few intriguing startups that raised cash this month that may have escaped your notice.

This month the rounds included everything from added support for cancer survivors to leveraging your car for credit. Let’s take a look.

AI parenting

Depending on who you talk to, AI can solve everything. But can it solve the problem of making sure your kids are watching what they should on the internet?

Well maybe — at least that’s what one Nashville, Tennessee-based startup is promising. Angel AI Co., which has created an AI platform that it says provides an “age-appropriate” internet experience for children between 5 and 12 years old, raised a $4.75 million seed round led by Cortical Ventures this month.

Angel AI says it uses large language models, natural language processing, speech recognition and other tech to generate age-appropriate answers to children’s questions and deliver what the company calls compelling but safe content and entertainment.

The platform has the ability to learn and understand the child over time, and will provide video and audio options at their comprehension level to help them learn.

Angel’s content is also free from advertisements and includes a parent insight portal — which can inform parents about their children’s interests.

Making it rain

One of the things humankind still has not figured out is how to control Mother Nature.

Nevertheless, an El Segundo, California-based startup is giving it a try when it comes to rain.

Rainmaker Technology raised a $6.3 million seed round from a large group of investors that included Long Journey Ventures, Champion Hill Ventures and Garry Tan. The startup aims to develop cloud seeding techniques — a weather modification tool discovered last century that seeks to introduce ice nuclei to clouds and cause, well, rain.

Cloud seeding can work, but the question has usually been how well it works. It also has been in the news recently.

Rainmaker hired its first engineers this year and now seems poised to get out into the field later in 2024 — and make it rain.

Fighting obesity

More than 2 in 5 adults — 42.4% — have obesity in the U.S., so clearly it’s a problem.

However, it also can be complicated due to the many reasons for it. Startup Phenomix Sciences is trying to bring some clarity to the problem. The Menlo Park, California-based biotech firm locked up a $5.5 million Series A this month from investors including DexCom, LabCorp and Health2047 as it tries to bring data intelligence to the treatment of obesity.

The startup, born out of the Mayo Clinic, says it has developed a phenotyping test that gives insights into genetics to determine an individual’s cause of obesity. The test is already in use by obesity treatment providers in the U.S. and identifies obesity subtypes of the disease caused by the interaction of genes and the environment.

These different phenotypes can include things like emotional hunger or hungry gut — defined as when someone eats a full meal but feels hungry soon after. Knowing the phenotype can allow for a better treatment.

Along with its Series A, the company also secured a $1.8 million National Institutes of Health research grant.

Obesity is serious and can be caused by many things. Knowing the root of a specific patient’s problem can lead to a better outcome.

Care for cancer survivors

Beating cancer is hard. However, sometimes dealing with beating cancer can be hard too.

OncoveryCare, formerly VivorCare, locked up a $4.5 million seed round this month led by .406 Ventures to launch its cancer survivorship care model.

The Boston-based startup’s virtual care model for cancer survivorship equips patients with a care team of survivorship-trained clinicians, and initial areas will be toxicity management, mental health support, navigation and care planning, and preventative care. The first regional rollout will serve Tennessee to start, in partnership with Tennessee Oncology, also an investor.

The population of cancer survivors is growing rapidly in the country, expecting to double between 2008 and 2030 to 22 million, according to the company. It’s critical to offer those survivors help as they fight fatigue and anxiety, and deal with complex screenings and monitoring — especially coming off the toughest battle of their lives.

A credit car?

While many people take getting a credit card for granted, it can be difficult for many people who have low credit scores or have struggled to build a credit history.

Dallas-based Yendo closed a $150 million debt financing led by i80 Group to try to help those people — using something many already have.

While some folks may not have a strong credit history, they have a car. Yendo provides a vehicle-secured credit card, allowing consumers to tap into the equity of their cars to get up to $10,000 of revolving credit. A person’s credit line increases proportionally as they pay down their auto loans each month.

The card also is available to customers who do not yet own their vehicle but choose to refinance their auto loan through Yendo.

The company’s card currently is available in 40 states across the U.S. and hopes to expand with the fresh funding.

For many, their car is their most valuable asset. Being able to access credit by leveraging it makes sense.

Illustration: Dom Guzman

Around 53%  of investors surveyed predicted that 2024 will pick up in terms of investment pace compared to 2023, while 6% expect to do fewer deals.  

However, the bar for founders to raise capital is higher. Founders will need to show growth alongside reaching break-even, said Fabre. 

A year of truth

“2024 is also a year of truth,” said Kauffman Fellow Fredrik Cassel, a general partner at Stockholm-based Creandum who anticipates belt-tightening companies to come back to raise funding in 2024, however with “increasing scrutiny on retention and value.”

Kauffman Fellows counts 885 graduates — members for life — the majority of which are general partners at firms. The survey includes around 260 respondents across 200 firms. For these firms, the median assets under management was $130 million. U.S.-based funds totaled two-thirds of respondents.   

We spoke with Fabre, who joined the nonprofit as the CEO in January 2024, bringing together his background in teaching and investing. He co-founded New York-based MatterScale Ventures, a venture firm that invests in Latin founders. He is an adjunct professor at Columbia University teaching a course on scaleups. Previously he spent 14 years at Endeavor, an organization supporting entrepreneurs around the globe. He ran Endeavor Mexico, and then became the global president for seven years. He is a Kauffman Fellow who graduated from the program in 2011 as part of class 14. 

Fundraising

“Everybody agrees that it’s very challenging right now to fundraise,” said Fabre. 

More than 95% of surveyed fellows perceive the climate for venture firms raising funds to range from somewhat to extremely challenging. 

Many expect endowments and foundations to cut back their positions in venture. That gap is going to be filled by sovereign wealth funds investing in larger funds while smaller funds fundraise from family offices. 

It is not all bad. Around 50% of those surveyed think they will be able to raise their next fund, but timelines have expanded from two years to four years to invest a fund, and then six years on divesting or getting returns.  

On exits

Around 30% of investors see 2024 as a challenging year for exits. The leading strategy for exits is M&A. And secondary strategies have become much more prominent, according to the survey. 

Far fewer funds — around 4% — expect IPO activity to be an exit strategy in 2024. 

Fabre sees more activity on the secondary front with venture funds setting up secondary funds to invest — often at prices below the next funding round. And there is an uptick in limited partners including family offices buying directly into secondary investments. 

Silicon Valley vs. rest of the world

With the advent of artificial intelligence, you might expect Silicon Valley to be more optimistic than the rest of the world, said Fabre. 

Based on the survey this is not the case. 

For most of the world, venture is still a growing industry. “The excess of the last few years is not relevant in the international scene outside of the U.S.,” said Fabre. 

For example, Brazil and Indonesia got a ton of money in the past five years, but the total amount is still low compared to what venture should be in those countries, he said. 

Illustration: Dom Guzman

For other stops on the path from youth to adulthood — like no longer ordering off the kids’ menu or trick-or-treating on Halloween — the delineation is fuzzier. One stops when it feels right.

Among startups, maturing out of seed-stage looks much the same. Securing a Series A round marks the closest thing to an official graduation from seed to early stage. But some startups take much more time to get there than others, if they make it at all.

These days, startups can remain at seed-stage for quite a long time. They can also score pretty good-sized financings well before getting to Series A.

The $5M+ seed round goes mainstream

In particular, we’ve seen increasing normalization of seed rounds of $5 million or more in recent years. Last year, for instance, Crunchbase identified more than 1,500 angel, seed or pre-seed financings that met or exceeded this level.

While overall global venture investment has contracted sharply since the 2021 peak, large seed rounds haven’t followed the same pattern. To illustrate, we charted total rounds and investment for this category across the past 10 calendar years.

As you can see, there were fewer jumbo-sized seed rounds last year than in 2022. However, it’s also notable that the 2023 total was only slightly lower than 2021. This is striking because most categories — late stage and pre-IPO in particular — have fallen quite sharply since the market peak roughly two years ago.

Supergiant seed rounds

The comparative resilience of seed is in part due to really, really big rounds at this stage. Financings in the tens of millions of dollars aren’t all that uncommon, and even deals over $100 million do get done.

Probably the poster child for the unbelievably huge seed round is Yuga Labs, the NFT collectibles startup known for its Bored Ape Yacht Club collection. The Florida company landed a staggering $450 million seed round in March 2022.

In the past six months, we’ve also seen some super-sized seed financings including:

• Elon Musk’s Austin, Texas-based xAI scooped up $135 million in December to build Grok, an AI designed to answer questions based on real-time knowledge of the world;
• Poolside, an AI platform for software development, raised $126 million in seed financing last year; and
• Black Ore Technologies, an AI-driven tax prep platform for accountants, secured $60  million in a seed round co-led by Andreessen Horowitz and Oak HC/FT.

As Crunchbase News’ Gene Teare reported earlier this year, seed funding to startups has grown into its own asset class over the past decade, with round sizes trending larger, and a bigger pool of investors backing these nascent startups.

The U.S. has been particularly active for big seed financings, which has driven growth of the asset class. In 2014 less than $5 billion was invested at seed. At the market peak in 2022, seed investment was more than $16 billion, although it fell to $11.5 billion in 2023.

Related Crunchbase Pro query:

• Seed Rounds Of $5 Million Or More

Related reading:

• From Construction To AI Diagnostics, Here Are 5 Areas Where Seed Investors Are Most Active
• The State Of Startups In 7 Charts
• What Did It Take To Raise A Series A Round In 2023?
• Lower Valuations, Higher Bar: What It’s Like To Raise A Seed Round In 2024 
• US Seed Investment Actually Held Up Pretty Well For The Past 2 Years. Here’s What That Means For 2024

Illustration: Dom Guzman

Here at Crunchbase News, we have our own future-telling tool: Seed-funding data. By looking at today’s cohort of very young funded companies, we can piece together a sense of the technologies startup investors see most impacting our lives in future years.

So what do the seed investment tea leaves tell us? To get an idea, we scanned through more than a thousand larger seed and pre-seed financings from the past year year 1. We then identified five areas piquing substantial interest. 

Some were obvious. It wasn’t surprising, for instance, to see that generative AI has been a popular area for seed investors.

Others were more unexpected. Construction tech, for instance, has seen a lot of seed dealmaking, even as late-stage investment has declined.

Without further ado, here are five of our top trends for seed-stage.

AI-enabled healthcare

There’s a lot of funding for nascent companies at the intersection of artificial intelligence and healthcare. At seed, this is playing out in areas from diagnostics to pharmaceutical research to administrative automation.

For a sense of who’s getting funded, we used Crunchbase data to put together a sample list of 32 companies that fit this category.

AI-assisted diagnostics was one of the more popular focus areas. Investment recipients include Floy, a German startup developing AI-driven software that helps radiologists detect difficult-to-see abnormalities, and San Francisco’s Glass Health, a platform for developing differential diagnoses and clinical plans.

Others are turning to AI to better understand immune response. New York-based Jona wants to use artificial intelligence to uncover links between the microbiome and health. Scienta Lab, based in Paris, meanwhile, is working on an AI platform for precision immunology.

Spacetech

Spacetech companies tend to be capital-intensive to scale. But you have to start somewhere. And lately, seed investors seem pretty enthusiastic about financing the earliest stages of development.

In recent months, we’ve seen seed-stage rounds going to startups in areas ranging from asteroid mining to spacecraft operations automation to satellite design. For a broader view, we put together a list of 20 companies that last raised a round this past year.

Some of the largest financings went to image and analytics providers. This includes OurSky, a Santa Monica, California-based telescope network that provides data and analysis of objects and activities in space, and Houston’s SynMax, a satellite data analytics provider specializing in oil and gas and maritime intelligence data.

Others are focused on launching into space. Germany’s Airmo is planning to launch 12 satellites into orbit to track greenhouse gases. And Los Angeles-based Auriga Space, which recently came out of stealth, is working on an electromagnetic launch system.

Construction

Much as we may revere the beauty of nature, most of us spend virtually all our time in the so-called “built environment.” We sleep, eat, work and recreate in or around human-constructed homes, roads, parking lots and commercial buildings.

In short, we are huge consumers of the products delivered by the construction industry.  Likewise, startups would like a piece of the proceeds.

Investors would too. Over the past year, we’ve seen dozens of good-sized seed-funding rounds for construction tech startups. They’re going to companies with focus areas including hiring, permit management, and project planning.

Below, we used Crunchbase data to curate a list of 26 companies that raised seed-funding for construction-related ventures in the past year:

A few startups are working on helping builders with hard-to-fill positions. New York-based Skillit, a recruitment platform for skilled construction labor, picked up an $8.5 million seed round last summer, and Paris-based Asap.work, specializing in temporary building jobs, cemented $5.4 million last spring.

Others are looking to make the administrative aspects of construction easier. San Jose, California-based Lumber offers payroll, time-tracking and project management tools for building contractors. Another Silicon Valley startup, PermitFlow, secured $5.5 million in seed funding to streamline and automate the permit preparation and submission process.

Fintech for the carbon economy

Increasingly in the global economy, emitting carbon comes with a cost. And getting rid of it carries a premium. But figuring out just how to calculate those costs and premiums is no simple feat.

Startups would like to help. In recent quarters, we’ve seen a good number of seed rounds going to companies working on tools to manage carbon credits, track and account for emissions, and finance renewable energy expenditures.

Using Crunchbase data, we put together a list of eight companies that have raised seed funding this past year for business models at the intersection of sustainability and finance.

One standout is Opna, a London-based climate financing platform that seeks to connect corporations with net-zero initiatives with carbon markets and carbon projects that seek financing. Another startup to watch is the U.K.’s Kita, which offers insurance products aimed at reducing some of the risk of carbon credit purchases.

Generative AI

Last but certainly not least on our list is generative AI.

Because artificial intelligence has been such a hot area for startup investment this past year, hundreds of companies focused on the technology have raised good-sized seed rounds. We didn’t attempt a comprehensive list, but rather cherry-picked a few dozen standout generative AI deals, featured below.

The top fundraiser was Elon Musk’s Austin, Texas-based xAI, which scooped up $135 million in December to build Grok, an AI designed to answer questions based on real-time knowledge of the world. Other big seed investment recipients include Liquid AI, a Massachusetts-based  MIT spinoff working on a new generation of AI foundation models, and Palo Alto, California’s Vectara, which is focused on advanced, AI-powered search technology.

The big picture: Consumer-facing is out

One startling similarity shared by our popular seed funding sectors is that few are developing platforms and products to market to the general public. There are a few exceptions, like Grok, which looks to be a public-facing AI. But for the most part, startups in construction, spacetech, carbon accounting and AI are targeting small business, enterprise and government customers.

Now, of course, this is partly selection bias. There are other somewhat popular areas for seed funding, such as alternative protein, gaming and personal finance, where startups are selling to consumers.

Nonetheless, we have seen the consumer products and DTC categories fall out of favor with startup investors across stages in the past couple years. Consumer electronics funding has lagged for even longer. Seed funding patterns indicate a near-term rebound is not likely in the cards.

Related Crunchbase Pro lists:

• Seed-Stage Funding To AI-Enabled Healthcare Companies
• Seed-Funded Spacetech Companies
• Construction-Related Seed-Funded Companies
• Seed Funding For The Carbon Economy
• Generative AI Seed-Funded Companies

Related reading:

• US Seed Investment Actually Held Up Pretty Well For The Past 2 Years. Here’s What That Means For 2024
• Lower Valuations, Higher Bar: What It’s Like To Raise A Seed Round In 2024 
• These Are The Sectors Where Hot Seed-Stage Startups Are Clustering In 2023
• This Seed Investor Is Preparing For A New Wave Of Startup Creation
• VCs No Longer Do DTC

Illustration: Dom Guzman

That’s certainly the hope from many of the startup investors and entrepreneurs we’ve spoken with recently, who say that even if things don’t come roaring back in 2024, they’re at least looking forward to a year of relative calm and predictability.

With that in mind, let’s look at what’s happening in the startup world as seen through seven charts based on recent Crunchbase data.

2023 ends on lowest note in five years

Venture funding has declined significantly since 2021, when it broke records.

Last year ended on a particularly low note, with Q4’s $58 billion in total venture spending the lowest quarterly amount in a year that itself clocked in at the slowest level of venture investment since 2018, Crunchbase data shows.

Even so, many investors we’ve spoken with predict 2024 will be a year of stabilizing — with the valuation drops and year-over-year declines of the past two years now largely baked into the market.

Even cybersecurity is not unscathed

Cybersecurity was once thought of as almost recession-proof. After all, hackers gonna hack, and companies and people need to protect their digital information.

But even cybersecurity funding has been hit by the venture downturn, with just $8.2 billion invested into startups in the space globally last year — a five-year low — according to Crunchbase figures. That’s almost half of the $16.3 billion invested in 2022 and down more than 64% from the record-setting $23 billion invested in 2021.

“What we saw in terms of cybersecurity funding in 2023 were the ramifications of the exceptional surge of 2021, with bloated valuations and off-the-charts funding rounds, as well as the wariness of investors in light of market conditions,” Ofer Schreiber, senior partner and head of the Israel office for cyber venture firm YL Ventures, told us recently.

Seed funding has remained fairly robust

Looking for a bright spot?

Turns out seed funding has held up pretty well through the downturn. Even as startup funding globally dropped 35% in 2022, U.S. seed investment actually grew 10%, Crunchbase data shows.

U.S. seed investment fell 31% last year, but even then, the decline was much less severe than at other funding stages.

Investors we spoke with also report that the seed market continues to feel quite vibrant.

And the median and average seed round size has grown significantly in the past decade, our data shows.

That said, seed startups that raised in 2021 going out for fresh cash now should expect their valuations to be trimmed, or at least to stay flat, investors say.

“The reality is that almost anything that was done then — call it 2021 — was the wrong price,” Jenny Lefcourt, a general partner at Bay Area-based seed investor Freestyle Capital, told us.

And the bar for raising a seed round is perhaps higher than it’s ever been.

“Most first-time founders especially, and the vast majority of founders generally — they have to get significant traction to be able to raise that same round they used to be able to raise,” said Michael Cardamone of New York-based seed investor Forum Ventures. “And a lot fewer of those rounds are happening.”

Web3 and the metaverse lose their luster

Web3 — the somewhat murky concept revolving around crypto, blockchain and a decentralized internet — was hot just a few years ago.

No more. Startup investors spent less than $7 billion on Web3 startups in 2023, Crunchbase data shows. That’s a far cry from the $33 billion they poured into the sector in 2021.

It’s a similar story when you look at funding to metaverse-related startups, another sector that investors went gaga for just a few years ago.

Despite the recent buzz around Apple’s new Vision Pro headset, it seems startup investors have lost interest — at least temporarily — in virtual reality, augmented reality and metaverse-related technologies.

Investment in the space in 2023 dwindled to less than $2 billion, Crunchbase figures show. That’s down drastically from the more than $5.7 billion invested each year in 2021 and 2022.

All eyes on AI

So where’s VC cash going instead? You guessed it: artificial intelligence. Startups that incorporate AI into their businesses raised close to $50 billion in 2023, Crunchbase data shows, making it the largest sector to show an increase in 2023.

Still, don’t expect things to stay as white hot in 2024, investors say.

“You are seeing some startups working through some legal implications even now,” Don Butler, managing director at Thomvest Ventures, told us. “I think some of that will lead to a cooling off when it comes to investment, especially in early-stage AI.”

M&A buyers play the waiting game

With funding scarce and IPOs scarcer, surely somebody’s scooping up all those startups desperate for cash or liquidity, right?

Not according to Crunchbase numbers, which show M&A dealmaking for venture-backed startups globally dropped by almost a third year over year in 2023. In the U.S., the figure hit a 10-year low.

What are startup buyers holding out for? Investors we spoke with say many buyers are flush with cash, but are likely waiting for valuations to drop even further from 2021’s lofty highs.

“I think in three to nine months you’ll see things picking up as valuations continue to drop,” Umesh Padval, a managing director at Thomvest, told us.

Related reading:

• Global Startup Funding In 2023 Clocks In At Lowest Level In 5 Years
• Artificial Buildup: AI Startups Were Hot In 2023, But This Year May Be Slightly Different
• Startup Investors Have Fled The Metaverse
• Cybersecurity Startup Funding Hits 5-Year Low, Drops 50% From 2022
• Web3 Funding Cratered In 2023
• US Seed Investment Actually Held Up Pretty Well For The Past 2 Years. Here’s What That Means For 2024
• Lower Valuations, Higher Bar: What It’s Like To Raise A Seed Round In 2024 
• Rough Ride: M&A Dropped 31% For VC-Backed Startups In 2023

Illustration: Dom Guzman

The VC bubble has subsided and last year marked one of the most difficult on record to raise a Series A funding round.

As interest rates climbed and global uncertainty became pervasive, the growth-at-all-cost mindset evaporated and investors pivoted rapidly to favoring startups with strong revenue, capital efficiency and strong gross margins. This left a lot of companies in the wind with 2023 seeing the highest number of startup bankruptcies in a decade.

At Kruze Consulting, we work with more than 800 startups and their founders to help them navigate everything from bookkeeping to getting prepared for funding rounds and due diligence.

At the end of the year, I wanted to find out what separated seed-funded startups that were able to raise a Series A with their peers that folded in 2023.

The analysis that I’m about to present looks at data from about 100 seed-funded startups that tried to raise a Series A in 2023 — comparing those that were successful with those that failed and subsequently went under.

AI startups, biotech startups and the like were removed from the analysis. The results reflected the shift in sentiment the ecosystem felt last year and should be seen as the new normal for founders.

So, what were the key metrics that differentiated between these two groups?

Revenue growth still matters

Revenue growth is, as always, a prominent signal. All of the companies that managed to raise were growing revenue on average at 4x the rate of those that closed shop. However, there were many startups with impressive revenue growth that were still unable to raise a Series A.

Investors value more than revenue growth

To that end, gross margin on that revenue was another clear distinction between companies that raised and those that failed. About 90% of startups raising a Series A in 2023 had an over 50% gross margin, with the average of the successful companies being 80%.

Again, the growth-at-all-cost mindset went by the wayside as investors only deployed capital into businesses that were generating high-margin revenue growth.

And those strong unit economics at the top line flowed through to the bottom line as well, with companies that closed a Series A showcasing an average burn multiple of just over 3x, whereas companies that failed were 10x worse. Only founders who had capital efficiency at the forefront were able to close that next round.

The past year was full of hard-earned lessons for founders and reset the standards for venture-backed startups. It all happened very quickly, and many businesses that didn’t have these metrics at the foundation of the business from the beginning were not able to turn the battleship in time.

Healy Jones is a vice president at Kruze Consulting, where he spends his time advising startups on the intersection of their strategy, financing and projections. Previously, he held finance and marketing roles with several startups, and has been an investor at multiple venture capital funds.

Related reading:

• US Seed Investment Actually Held Up Pretty Well For The Past 2 Years. Here’s What That Means For 2024
• Lower Valuations, Higher Bar: What It’s Like To Raise A Seed Round In 2024 

Illustration: Dom Guzman