VCs become choosy about start-ups: Is the Series A funding crunch back?

In 2018, start-ups raised a record $7.8 billion, almost twice of what they raised in 2017. This was led by late-stage deals, with Series-C deal value growing 2.85X to $1.8 billion and Series-E deal value surging 3.8X to $3.5 billion in 2018. But Series-A and Series-B deal values were mostly flat, with VCs choosing to write bigger cheques for fewer start-ups. 

Some fear the Series-A funding crunch is back: Some start-ups are taking over a year to raise pre-Series-A while others are getting acqui-hired. This is partly true as VCs are backing start-ups with higher revenues to ensure they can attract talent to scale. VCs say the targets are moving. Earlier if they were giving $1 million to a start-up with an ARR (average revenue run rate) of $3-5 million, now they want to give $3 million to a start-up with $5-10 million ARR. ‘‘VCs are waiting for them to touch $5 million so that they can hire talent, which can scale it to a $100-million global company,'' adds the VC. Some VCs say the deal pipeline stays strong and the aggregate numbers don't tell the entire story. Many firms such as Sequoia, Accel, Saif and Nexus don't disclose their early-stage deals.