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How Coronavirus Could Impact Seed-Stage Startup Investing

Finding seed-stage investor funding is the critical first step for many young ventures. 

Unfortunately the spread of the COVID-19 virus looks to be having a significant negative impact on seed investments already, and more in coming months.

CB Insights recently published new research suggesting that overall startup funding and deal activity (including later company life cycle stages) may have already been negatively impacted by the Covid-19 pandemic, and they highlighted that in a recent brief

Seed-stage deals, however, have taken a disproportionate hit:

Seed Stage Startup Investments Falling

"Seed-stage funding, which accounts for many startups’ first major foray into raising capital, is projected to decline 22% in Q1’20 compared to Q4’19. The number of global seed deals is predicted to fall only 8% during the same period." 

Why are Seed Stage Startup Investments Falling?

The report goes on to suggest several factors that are hurting early stage seed deal flow:

  1. Compounding economic factors — including uncertainty due to the spread of coronavirus. 
  2. Seed investments from larger VCs are drying up as they redirect their attention from deal sourcing to managing existing portfolio companies.
  3. Angels and other independent early-stage dealmakers (who drive a disproportionate share of seed deals) are more likely to sit on the sidelines than larger firms with committed capital during a recession.
  4. Crashing stock prices have investors of all types looking to protect returns and refocus on safer assets like bonds, gold, or more established later-stage companies. 

Thanks to Anand Sanwal (@asanwal) of CB Insights for the research and the graphic. 

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