From Seed to Series B: Navigating the Shifting Sands of Startup Funding in Europe

In the latter half of 2023, European startups experienced a notable shift in the timeline and dynamics of venture capital funding, according to insights from Carta reported by Sifted. The journey from Series A to Series B funding has become significantly longer for European Series A startups, with the timeframe extending by an astounding 85% compared to the first half of 2022. This trend has resulted in startups taking approximately 760 days on average to secure Series B funding after closing a Series A round.

A Closer Look at Funding Timelines
The funding landscape has seen varied changes across different stages. For pre-seed startups, the median time to raise seed rounds surged by 49%, reaching 511 days. This increase underscores the growing challenges and heightened scrutiny faced by early-stage startups in progressing to the next funding stage.

Conversely, seed startups experienced a slight improvement, with the time required to raise Series A rounds decreasing marginally by 1% to 391 days. This minor reduction suggests a somewhat more streamlined pathway for seed startups advancing to the Series A stage, albeit the overall environment remains challenging.

Round Size Dynamics
The funding scenario also witnessed fluctuations in round sizes at different stages:

• Series B rounds saw a 6% increase in median size, hitting a record high of £35M ($44.8M), indicating robust investor confidence in more mature startups.
• Series A rounds, on the other hand, observed a 21% contraction in median size during the second half of 2023, reflecting a cautious approach towards earlier-stage investments.
• Seed-stage rounds experienced a 14% decrease in median size, further illustrating the tightening funding environment.
• Interestingly, pre-seed round sizes surged by 40%. This increase can be attributed to a significant 30% year-on-year contraction in the number of pre-seed opportunities, creating a seller’s market scenario as per Carta’s analysis.

Navigating the Funding Landscape
The extended timelines and shifting round sizes reflect a complex funding environment for European startups. The lengthening gap between Series A and Series B funding rounds signals increased investor caution and the need for startups to demonstrate more substantial progress and resilience. Meanwhile, the dynamics at the pre-seed and seed stages highlight the competitive and selective nature of early-stage funding.

For startups navigating this landscape, strategic planning, efficient use of resources, and clear communication of value propositions have become more crucial than ever. As the market continues to evolve, adaptability and insight will be key for startups aiming to thrive in the challenging yet opportunity-rich European venture capital ecosystem.