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It’s widely known that venture capitalists are investing less money lately, but not all startups are feeling the pinch. Despite macroeconomic concerns and a broader chill on VC investment, funding for seed-stage startups in Los Angeles is still chugging along, according to a new report.
Amplify, a Venice-based early-stage VC firm, examined seed deals in L.A. that were publicly announced during the first half of this year. One of the report’s main findings: seed funding actually grew when compared to the same six months last year, from $330.2 million in 2021 to $539.1 million this year.
That’s not to say there aren’t some signs that seed funding is taking a hit. This year’s first-half funding is down from the $780 million raised during the second half of last year. There has been a steady drop in the number of seed deals quarter over quarter, the report noted. Average seed deal size has also dipped, albeit slightly, from $4.3 million in the second half of 2021 to just over $4 million so far this year. The head of one local startup accelerator recently said he’s seen less seed stage activity.
Still, when compared to the first half of last year, “L.A. Seed rounds appear to have held up fairly well amidst broader—and generally pessimistic—market conditions,” the Amplify report noted. PitchBook, the capital markets data firm, indicates this trend is happening nationwide, too. It recently reported a “strong environment of seed-stage investing” in its quarterly analysis of the industry.
This confirms what I heard anecdotally from local VCs when I interviewed them about the broader funding decline. TenOneTen Ventures Partner Minnie Ingersoll told me earlier this month that the early-stage investor was keeping pace with its usual deal flow. “I would say there has been less change than I have expected,” Ingersoll said
SaaS startups in L.A. have apparently been the biggest beneficiaries, accounting for roughly 40% of all deals during the first half of this year, Amplify reported. That could be a sign that LA’s tech ecosystem is maturing as more talent and money move in, the report said. Historically, there have been far fewer SaaS seed deals in L.A. than in other regions.
Why has funding for the earliest stages shown fewer signs of slowing down? Generally, seed-stage investments are furthest from the public market, where tech stocks are getting pummeled. Companies receiving seed investments are often years away from going public and giving VCs the chance to make a profitable exit. That distance from the volatility in the public markets has largely insulated firms in the earliest stages, Amplify analyst Olivia Pittard told me.
“Given that time gap, there is more optimism among early stage investors that market conditions will shift in the right direction within two years,” Pittard wrote in an email.
Whatever the reason, the Amplify and PitchBook findings are a good sign for startups hunting for their first checks. It could be a good time for them to hire, too. With growth-stage firms laying off workers to weather the economic storm, Pittard said it’s now “a fantastic time” for early stage startups to scoop up that talent.— Christian Hetrick
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Deal activity in the Los Angeles MSA since 2019. Source: PitchBook Data
Image courtesy of Hagan Blount
