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U.S. Seed Fundraising Insights and Trends

Funding Report | Jan 4, 2024

SEC Advocate of Small Business Capital Raising 2023 report - U.S. Seed Fundraising Insights and Trends

SEC Advocate of Small Business Capital Raising 2023 report

The SEC's Office of the Advocate of Small Business Capital Formation 2023 Report - Insights and Trends to Help Prepare for Fundraising in 2024

Understanding the nuances of seed fundraising in the United States is crucial for entrepreneurs and investors alike. At the National Crowdfunding & Fintech Association (NCFA) Canada, we recognize the significance of these early-stage investments as a cornerstone for innovation and growth.

See:  Canada’s Top FinTechs: Deloitte’s 2023 Fast 50

From the dizzying highs of record-breaking deal values to the more tempered climate of today, the seed stage has mirrored the venture life cycle's ebbs and flows. However, despite these fluctuations, the U.S. continues to present a fertile environment for seed-level investments.

Seed Fundraising Count and Value

YearH1 Deal Value (Billion $)H2 Deal Value (Billion $)H1 Deal CountH2 Deal Count
2018$5.4$4.32,2302,223
2019$5.0$5.12,2873,490
2020$5.6$5.93,3283,209
2021$8.8$9.82,5852,386
2022$14.0$10.01,9821,980
2023*$6.6N/A1,810N/A

*Data for 2023 is as of June 30.

Total Capital Raised by Private Companies 2023 (excl pooled investment funds)

U.S. Private companies raised $662 billion through private securities exemptions as of June 30, 2023.  This represents 39% of the total capital raised year to date.  An additional $1 trillion or 61% was raised by U.S public companies.

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Here's a more detailed breakdown of the $662 billion by exemption type:

  • Regulation D 506(b): $259 billion
  • Regulation D 506(c): $16 billion
  • Regulation A: $1.4 billion
  • Regulation Crowdfunding (Reg CF): $352 million
  • Rule 504: $200 million
  • Other exempt offerings: $385 billion

 

Regulation Crowdfunding (RegCF)

Regulation Crowdfunding has emerged as a vital pathway for capital raising, particularly for small businesses, women founders, founders of color, and companies located outside traditional investment centers. Its impact on the capital formation landscape is marked by its contribution to diversity and geographical inclusivity.

Total number of U.S. counties with crowdfunded companies is increasing:

2020:  137 counties

2021:  220 counties

2022:  273 counties

SEC small business advocate 2023 report Crowdfunding by state - U.S. Seed Fundraising Insights and Trends

Image: SEC Small Business Advocate 2023 Annual Report - Regulation Crowdfunding by State

See:  U.S. RegCF Trends: Investment Engagement by Age

Regulation Crowdfunding data from 2022

Total Capital Commitments in 2022 was $506.7 Million (down 10.2% from 2021)

Average Investor Check Size was $1,578

Average Raise Per Campaign in 2022 was $428,486 (down 5.9% from 2021)

71.5% of offerings in 2022 exceeded their minimum funding targets

28.5% of offerings in Q3 2022 had at least one woman founder

70% of the capital was distributed outside the top 10 capital hubs

25.2% of offerings in Q3 2022 had at least one founder of color

The Evolving Seed Fundraising Climate

In this climate, entrepreneurs are encouraged to explore a variety of funding sources, including crowdfunding, angel investors, and early-stage venture funds.  The current climate favours startups with sustainable, long-term growth strategies, pushing entrepreneurs to build more resilient and adaptable business models.  This environment has spurred the development of more robust support systems for early-stage companies, including incubators, accelerators, and mentorship programs.

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The period leading up to 2022 saw a surge in deal values, reflecting an investor confidence that propelled startups to new heights. However, this trend has since normalized, aligning with a more cautious investment approach in the face of global economic uncertainties.

Seed investors are broadening their horizons, with a wider geographical reach between companies and lead investors. This expansion signifies a growing openness to exploring opportunities beyond traditional tech hubs, a boon for startups situated in less prominent locations.

The path from seed to Series A funding has become more arduous, with a notable increase in the time taken for this transition. This change underscores the need for seed-stage companies to demonstrate more robust business models and clearer paths to profitability.

Outlook

The expanding geographical reach of seed investors and the growing importance of Regulation Crowdfunding underscore a diverse and inclusive funding landscape. For startups, the emphasis is on building sustainable, adaptable business models that can withstand the challenges of transitioning from seed to Series A funding. The insights gained from this year's funding trends are invaluable for stakeholders aiming to thrive in this ever-evolving ecosystem.

Download the 128 page PDF report --> here


NCFA Jan 2018 resize - U.S. Seed Fundraising Insights and TrendsThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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