Is It Becoming Impossible To Fund Idea Stage Startups?

More startup capital is available now than ever before – the annual global venture capital volume has grown from less than $100B in 2012 to more than $600B in 2021. Surely, this means that in 2021 it was easier to fund business ideas than ever before in human history.

Yet, this might not necessarily be the case. Even though the dollar amount invested is record-breaking, the deal volume is not growing. In fact, the venture deal volume peaked in 2018 with over 30k deals.

This shows a relatively clear trend – the thing driving the total growth of money invested in startups is the growth in deal sizes rather than deal count.

According to TechCrunch, the average Series A round in 2010 was $4.9M, while in 2017 it reached $12.1M (it’s highly likely that this number grew further in 2021). This trend is also true for seed-stage investments – as a rule of thumb, you can argue that over the last decade the investment stages have shifted up a level. The current seed rounds resemble Series A rounds from a decade ago, which only makes it logical that the companies receiving the money should also offer more in return.

In order to justify investing a larger amount of money in a project, it is only rational to search for companies that are on a later developmental stage – less risk because of better-validated potential.  

While this concentration of more resources into the hands of fewer projects is discouraging to new entrepreneurs, it is hardly surprising, as a Pareto distribution is very common in society when it comes to wealth (80-20 principle, winner-takes-all economies, etc.).

Among a list of surprising startup funding statistics, a 2018 Lendio survey showcased that 77% of startups rely on personal funds for financing. With the current investment trends, it’s a safe bet that this number would grow. Or in other words – if you have an idea, hopefully, you also have the resources to get it to the growth stage by yourself.

That said, such stats should be taken with a grain of salt. Statistics for very early-stage investments (especially when they are coming from private individuals) are very hard to track. In more mature startup markets, this trend is most likely true – investment money concentrates in higher-quality, later-stage projects.

However, in young markets, high-quality late-stage projects are by definition a rarity. This means that investors who want to benefit from the growth of such markets would be forced to place bets on early-stage companies. For example, it is a fairly safe assumption that idea-stage blockchain startups are having an easier time getting an investment than idea-stage web 2.0 social media startups.

In summary, getting startup capital for an idea-stage startup is hard, but your chances to do it are higher in newly-emerging niches and markets.