The Shrinking Series E: More Senior Startups Raise Smaller Follow-On Rounds

Typically, when a venture-backed startup raises a follow-on round, the size of the investment and the company’s valuation go up as well.

One expects a Series D round, for instance, to be larger than a Series C. Another bump usually occurs should the company secure a Series E.

Lately, however, sequential rounds aren’t always getting bigger, a review of Crunchbase data suggests. Instead, as companies that last raised in a bubblier investment climate a few years ago secure fresh capital, they’re often reporting rounds that are smaller than prior ones.

Smaller Series E and Series F rounds

To get a sense of how common shrinking rounds have become, we put together a sample set of American companies that raised Series E or Series F rounds this year. We then compared the investment size to their previous Series D or Series E.

As there were only 15 companies 1 that raised a sequential round at these stages, it was a limited sample set. Even so, some clear trends emerged from the comparison, charted below:

Most strikingly, just over half of the surveyed companies raised less in this year’s round than in their prior venture series round.

The one on our list with the most dramatic decrease was Perfect Day, a producer of animal-free dairy proteins that raised $90 million in a January Series E financing. That’s about a quarter the size of its last round, a $350 million Series D in 2021.

Another company that saw a decline was diagnostics provider Binx Health, with a 36% smaller follow-on round. Cancer-focused biotech Freenome, meanwhile, picked up $46 million less in its Series E compared to its Series D.

Bigger rounds happen too

There were also examples of larger follow-on rounds.

For instance Bugcrowd, provider of a security testing platform, raised $102 million in its February Series E, which was more than triple the size of its Series D. Another security provider, Dtex Systems, also notched a gain of almost that magnitude.

In total, five of the 15 companies in our sample raised a larger follow-on round. Another one —  cybersecurity asset inventory platform Axonius — pulled in a $200 million Series E extension round, which was the same size as its prior Series E.

Raising a smaller round isn’t clearly bullish or bearish

Raising a smaller sequential round isn’t the most bullish sign. However, in the current investment climate, it’s not exactly a negative indicator either.

After all, companies that scale back for their next round are still convincing investors to provide fresh funding. That means backers must still believe in the business and its ability to produce a return.

Nonetheless, it’s also a reminder that average round sizes, and in many cases valuations, have come down considerably since the market peak. Collectively, American companies this year have raised $2.1 billion in Series E and Series F rounds so far this year, per Crunchbase data.  During the same period in 2021, companies collected roughly six times that amount for rounds at the same stage.

Just closing a late-stage round these days is something of a feat.

Related Crunchbase Pro list:

Illustration: Dom Guzman