More early-stage startups are raising “supergiant” seed-funding rounds over $10 million than ever. Here’s why.
August 30, 2022
Seed-funding rounds are usually around $1 million, but some startups are raising more than ever.
Some startups are raising “supergiant” seed rounds, in which they raise at least $10 million.
VCs say larger seed rounds can help startups extend their runway in tough market conditions.
Some early-stage startups are starting to fetch eye-popping amounts of cash during their first rounds of funding that rival more established companies’ A, B, and C raises.
“Supergiant” seed rounds — where startups are taking in more than $10.5 million in seed funding, a number usually reserved for a healthy Series A round — are all the rage now in Silicon Valley. In particular, healthtech startups like Salvo Health, Caraway, and Ness have all raised supergiant seed rounds in recent months.
Seed-funding rounds are usually a startup’s first foray into raising money from the outside world. While startup founders might first raise money from family, friends, and their own pocketbooks, seed rounds are the first times that young companies meet with VCs and other investors and pitch them on investing enough money to grow to viable businesses.
Coined by Crunchbase, the number of supergiant seed rounds has risen sharply over the last couple of years, coinciding with an influx of early-stage funding more generally. According to Crunchbase data, seed-round sizes in 2021 ranged from $700,000 all the way up to $22 million.
VC funding reached new highs in 2020 and 2021, but many investors have pulled back on putting money into startups at later stages in 2022 due to market uncertainty. After years of rampant growth, startups have been working to cut costs and, in some cases, have laid off employees.
A supergiant seed round can be a good way for founders to cushion their businesses during the downturn, Deena Shakir, a partner at Lux Capital, said.
“We’ve been seeing larger and larger seed rounds for some time, especially in the last three to five years,” she told Insider. In the current market — where investors are telling many startups to cut costs and extend their runways — it can make sense to take more money to help combat the unknown, Shakir said.
“From an entrepreneur’s perspective, maybe they were more dilution-sensitive previously but are now more unsure of what the future holds,” she said. “It used to be totally normal for early-stage startups to think about raising again three, four, or six months down the road, but not anymore, so entrepreneurs are open to taking in more capital earlier when the interest is there.”
Healthtech startups are attracting supergiant rounds
In recent months, founders who are already well-known in Silicon Valley have succeeded in raising supergiant seed-funding rounds: Salvo Health, which Foursqure, Seamless, and Compass execs cofounded, raised $10.5 million for its virtual chronic-gut-health app. And Adam Neumann, the controversial founder of WeWork, just raised a staggering $350 million from Andreessen Horowitz — the VC firm’s largest-ever check — for his new real-estate startup, Flow.
Jeff Glueck, a cofounder and the CEO of Salvo Health, said the startup set out to raise a supergiant round from the beginning.
“We all have built successful companies before and raised large rounds in the past, and we wanted to build things right from the beginning,” he told Insider in an email, adding that Salvo Health ended up with an oversubscribed seed round and had a ceiling on the dilution — the portion of the company they were willing to sell — that they would accept. The magic number ended up being $10.5 million, an amount big enough to help the startup achieve its goals, but below the dilution threshold given its valuation, Glueck said.
While Glueck noted that it’s healthy for startups to start out lean, Salvo Health needed more cash to build out a network of healthcare experts including doctors, psychologists, nutritionists, and health coaches to treat chronic conditions.
“Salvo Health was a bigger project than simply an app and software, so it needed more capital — a super-seed was more appropriate,” he said. “We believe a larger round gives us an advantage in more time and buffer to attract talent, hone our product, show numbers, and build technology before needing to start raising a Series A.”
In the healthtech space specifically, investors say they’re willing to bet big on early-stage companies in the form of supergiant seed rounds when they stand to disrupt the massive healthcare industry — which accounted for nearly one-fifth of US GDP in 2020.
This year, chronic disease, IT, and therapeutics startups have commanded mind-boggling seed rounds, such as Ascertain, a healthcare-AI-company builder; AndHealth, a chronic-disease startup; and Aveneer Health, an IT provider, which have raised $100 million, $57 million, and $50 million, respectively.
And similar in size to Salvo Health’s $10.5 million seed round were Ness, a fintech company that rewards users for healthy behaviors and raised $15.5 million; Nitra, a doctor-payment platform, which raised a $62 million seed round — $16 million of which was in equity; and Caraway, a virtual-care startup for college-age women that also raised $10.5 million in seed funding.
In Caraway’s case, founding partners at OMERS and 7wireVentures, which co-led the funding round, helped build the startup.
Chrissy Farr, a principal at OMERS, and Alyssa Jaffee, a partner at 7wireVentures, said the startup is meeting an underserved population that represents a huge market opportunity. They invested enough to help it succeed — and they also worked more directly with the startup prior to the seed round on development and market research, which gave them the confidence to fund a supergiant round.
“In this case, the goal is to build a really generational company, and it takes a lot of capital to make sure that happens,” Jaffey told Insider in an interview. “Some other VCs try to do a ‘spray and pray’ to see what sticks, but we’re more concentrated.”
Biggest isn’t always best
Outside of healthtech, blockchain and crypto startups like Yuga Labs, Binance.US, and Aptos have also commanded massive seed rounds in recent months, to the tune of $450 million, $200 million, and $200 million, respectively.
But even as more and more startups raise supergiant seed rounds, plenty of others are raising more traditional — albeit growing — amounts: According to Crunchbase, the average seed round has grown from $1.7 million to $4.6 million in the last decade.
Farr said that a supergiant seed round can create tension for some startups down the road.
“If you raised a high valuation and a lot of money, that can be a bit of pressure to deliver on whatever milestones or metrics you need to get the company to the next round, in order to match or exceed your previous valuation to get an up round,” she told Insider in an interview.
Kevin Lalande, the founding managing director and chief investment officer at Santé Ventures, told Insider in an interview that money isn’t always a good substitute for time — and while founders will always be able to find ways to spend buckets of cash, that might not be in their best interest in the long-term.
Some startups have tried to find a seed-round sweet spot that balances having enough cash without ballooning into a supergiant check, like the healthtech startup DAO Love, which Ryan Breslow, the cofounder of Bolt, and Summer Health, a remote patient-monitoring startup, founded. Both recently raised $7.5 million seed rounds.
“With a seed-size startup, you’re still ruling out whether or not the company will work,” Lalande said. “You don’t want to invest so little that it doesn’t stand a chance, but you also don’t want to waste a lot of capital.”