The number of founders taking secondary liquidity after their seed round is twice as high as the 2021 peak. While this de-risks the journey for founders, there is almost no parallel liquidity offered to early employees, creating a growing divide in early-stage risk and reward.
The use of SAFEs has expanded beyond pre-seed, becoming the dominant instrument for rounds up to $4M that were historically priced. This trend simplifies closing a round but creates significant downstream complexity when calculating ownership for employee stock option grants and future rounds.
Before GenAI, the key question for seed investors was whether a product created real value. Now, with AI enabling obvious value creation, the primary concern has become defensibility. Investors are now focused on a startup's ability to compete with big tech, incumbents, and foundation models.
Historically, a bridge round signaled a company was struggling. Now, this signal is split. A new class of 'bridge' is emerging as a pre-emptive investment from enthusiastic investors wanting to deploy more capital into a fast-growing company before its official priced round, making it a positive indicator in some cases.
Businesses previously considered non-venture scale due to service-based models and low margins, like Managed Service Providers (MSPs), are becoming investable. By building with an AI-first core, these companies can achieve the high margins and scalability required for venture returns, blurring the line between service and product.
Data shows companies with the highest seed valuations graduate to Series A only slightly more often than those in the 2nd and 3rd quartiles. The real danger lies at the bottom: companies with the lowest-quartile valuations are only half as likely to raise a Series A, suggesting raising too little capital is a critical failure point.
The public example of X operating with 85% fewer staff created a powerful meta-narrative influencing founders to build leaner. As a result, the median Series A company team size has dropped from 25 employees in 2021 to a projected 15, a significant shift toward capital efficiency over hiring.
Despite headlines about rapid-growth companies, the typical startup journey is slowing dramatically. The median time between Series A and B rounds is now close to 1,000 days (almost 3 years), creating a barbell market where a few companies raise quickly while the majority face a much longer path to their next milestone.