Seed-stage startups in the United States once appeared resilient, even as larger segments of the venture funding market took a hit. Part of this strength came from bigger seed rounds becoming more common. Yet beneath that growth lies an unsettling trend: Far fewer of these young companies are moving on to raise Series A capital. This delay heightens the probability that many will fail—and that could ultimately impact the early-stage investors who backed them.
Below, we’ll explore why seed-stage startups are lingering longer before reaching Series A, what it means for their chances of success, and how this stalled progression could reshape the venture landscape.
A Longer Road To Series A
In 2023, data showed that seed-stage startups often raised multiple rounds of seed financing, holding out longer before making the leap to Series A. According to recent analyses, these founders are taking extra time to validate product-market fit and display true growth potential. Investor Michael Cardamone, CEO of Forum Ventures, noted that achieving meaningful traction in under two years is becoming less common. He emphasized that companies now need solid proof of demand and market uptake before Series A investors will seriously consider them.
This elongated timeline puts extra pressure on founders to extend their runway. Many feel compelled to reallocate funds toward stable growth or even breakeven strategies, rather than taking big risks to accelerate user adoption. While that more cautious approach might help them stay afloat in the short term, it can hinder the robust traction investors expect at the Series A stage.
The Risk Of Higher Failure Rates
One of the biggest dangers in this drawn-out path is a rising failure rate among seed-stage startups. If more young companies run out of steam without securing Series A, many early-stage funds will see minimal returns. Eventually, this could reshape the seed-investing arena.
When fewer businesses graduate to Series A, investors must rely on the rare winners to carry their portfolio’s success. According to Cardamone, it’s growing more challenging for seed investors to spot those breakout companies. As the market normalizes, only startups with real-world traction and a clear market fit will draw Series A interest.
Limited Progression In Recent Years
Crunchbase data indicates that since 2021, startups that raised initial seed rounds of $1 million or more have been slower to advance beyond seed stage. By comparing prior years, we see that past groups more readily secured their next round of funding or reached an exit. In fact, only 36% of seed-stage startups from the 2021 cohort have moved beyond seed, and that figure drops to a mere 20% for the 2022 class. Previously, those rates ranged from 51% to 61%.
The real takeaway: More than half of seed-funded companies from recent years remain stuck at the seed level or have already shut down. While graduation rates show slight upticks—2% to 3%—every six months or so, that progress is nowhere near what it was pre-2021. As a result, the market is flooded with ventures competing for Series A attention, yet few truly stand out.
Why A Faster Failure Rate Could Help Some Investors
It might seem contradictory, but quicker “deaths” among underperforming startups can be an advantage for funds. For one, it signals that not every mediocre venture gets follow-on funding, giving investors the clarity to double down on real winners. Andy McLoughlin, managing partner at seed-stage investor Uncork Capital, suggests this dynamic can be positive for the broader ecosystem. When a weak company closes, talented team members quickly seek roles at stronger ventures, concentrating expertise where it’s most likely to yield significant returns.
Still, this reset challenges many seed-stage investors who must be more diligent in vetting founders and business ideas. Even so, it can prevent them from being locked into multiple funding rounds for startups that show little promise. Over time, this selectivity can help investors reinvest capital into successful companies poised for bigger exits or faster growth.
The Ripple Effect On Seed Funds
If the slow graduation from seed to Series A continues, mid-sized and smaller funds could face hurdles in raising subsequent pools of capital. Venture firms often pitch their past track records when courting potential limited partners. Slow or nonexistent Series A progress means fewer success stories to spotlight. As a result, seed funds lacking a strong winner might struggle to raise new funds, potentially shrinking the market of available startup capital.
These trends highlight a venture landscape marked by greater caution. Investors have returned to more measured dealmaking, and entrepreneurs feel pressure to present robust business metrics early on. While that heightened scrutiny can push founders to refine their models, the downside is more startups will fail before they ever get the chance to scale.
Finding A Path Forward
For founders eager to break free from seed purgatory, the watchwords are traction, product-market fit, and sustainable growth. Seed-stage startups that demonstrate real demand—paired with a viable plan for growth—have the best shot at inspiring Series A confidence. Rather than chasing vanity metrics, they should focus on tangible signals of customer loyalty, revenue potential, and a clear market need.
From an investor’s standpoint, this environment calls for sharper diligence. Identifying the minority of ventures that can deliver strong returns in a tight market will hinge on careful vetting, robust market validation, and fostering the right strategic partnerships. Over time, we may see fewer but stronger startups secure the Series A capital they need to scale, reshaping how venture capital is allocated across early-stage companies.
Final Thoughts
The slowdown in graduation from seed to Series A is forcing everyone in the venture ecosystem to adapt. Founders face heightened expectations to prove product viability, while investors must adopt a more discerning eye. Although these shifts raise the risk of failure for many seed-stage startups, they also create an environment where the cream can more easily rise to the top.
In the end, today’s venture climate could lead to fewer, healthier, and more focused seed-stage startups. Those that survive the longer road to Series A will likely arrive stronger, having tested their product-market fit and polished their operational plans. For now, the best path forward is strategic growth, practical innovation, and a relentless focus on building value that resonates with both customers and investors.
