Why were seed funding rounds down in USA in 2014?

The number of Start-up seed rounds in USA in 2014 were down by 30%?

On the whole, seed investment dollar value in 2014 looked very similar to 2013 but the number of deals dropped 30%.

This drop in number of deals, without a similar decline in investment dollars, indicates that the average seed round in 2014 was larger.

In turn suggesting the valuation or valuation cap of the average round increased.
And indeed, the average seed round rose 28% while the median rose 40%.

One theory:-

I read an article recently regarding the decline in start-up businesses in USA.
The nub of the article was start-ups of all types of businesses have been in steady decline for about 20 years in the USA. The author claimed this was due to:-

restrictive immigration laws keeping enterprising foreigners out of USA
regulatory restrictions – on options and share issues
caution and risk aversion of entrepreneurs
economic un-certainity from QE in USA, Japan and now the ECB
political gridlock in Congress

What has been the impact of interest rates on Start-up investments?

I suggest that:-

Since the GFC in 2008 the U.S. central bank’s reaction was to keep artificially low interest rates plus with the flood of $$ resulting from the 18 months of QE the country and world is awash with cheap money.

Therefore, investors’ are struggling to find decent returns in a low interest rate environment where money is cheap and undifferentiated. They will look at anything.

But their experience from the 2000 “dot.com” bubble and the GFC crash has made investors very cautious and not throw their money at high risk investments, i.e. a start-up with a great idea

So – why are fewer larger value deals are being done?

I suggest that:-
Investors are ignoring early stage start-ups and early seed $$ and waiting longer and avoiding or minimising the risk.

The hit rate with start-ups is very low – so investors are saying, “lets wait and invest bigger $$ in established enterprises”.

Which suggests that start-ups must be further along the establishment curve and have a better revenue and business story before investors will come in.

Plus a lot of new investment funds is being re-cycled by successful Founders who have exited and investors who have done well from previous start-up investments.

They are in the IT loop and only put funds in the main, into established proven start-ups and come in at Series A,& B rounds instead of seed rounds.

What to expect in Q1 2015?

I suggest that:-
The steep decline in the number of USA start-ups might be as a result of investors reacting to mounting concerns about investment risk and economic un-certainity.

This is due in part from the cessation of USA central bank’s QE activities and the start of QE activity in Japan and the ECB, will mean:-
more of the same, possibly a further decline in number of start-ups in line with the steady historic decline
less funds into early stage start-ups
more funds into proven or established enterprises.

PJM – 20th January 2015