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February 20, 2024 | Tom Ballard

Seed stage investments examined in report from J.P. Morgan

The impact is that there has been a drastic shift from founder-friendly in Q1 2022 to investor-friendly in Q4 2023.

Financial giant J.P. Morgan recently issued a report examining seed stage investment activity.

The report noted that early stage investment has historically been less sensitive to the economic environment, public market performance and the business cycle than later stage investment activity. “However, as macroeconomic factors dragged down total U.S. venture investment from its 2021-22 peak, the number of seed deals declined 56 percent between Q1 2022 and Q4 2023, even though company formations remained stable,” the analysis concluded. Another takeaway was that, while the pricing of seed deals has remained elevated,  the number of deals closing has fallen back to pre-pandemic levels. Investors have slowed their activity and are more selective when making investments.

What’s is the result? Negotiating power has swung drastically from founder-friendly in Q1 2022 to investor-friendly in Q4 2023. The report notes that more than a third of the deals are concentrated in two geographic areas – California (26 percent) and New York (13 percent). In terms of sectors, software-as-a-service (16 percent) and artificial intelligence (15 percent) dominate as percentage of total deals.

Another surprising statistic relates to the background of founders. Using data from Harmonic, the report notes that founders who were able to raise a seed round in Q3 2023 likely attended a top university and had prior experience in the industry.

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