What Happens After You Make a Seed Investment?

At AngelList, we’re constantly analyzing investment data to provide our deal leads with useful insights they can put to work. AngelList Venture has participated in thousands of early-stage investments, including more than 1,500 seed deals in 2019. We analyzed the data on what has happened to those investments to create the following plot:

The different colors correspond to different outcomes for seed investments, and time moves from left to right. After one month, virtually no seed investments have been marked up or exited. As time goes on, more companies are marked up or exited. “Exits” here can be either good or bad; an all-cash acquisition or a winding down at a complete loss would both be shown as green in the plot. (Markups are only registered for priced rounds per the AngelList valuation methodology.)

Our results support one of the more intriguing findings from the whitepaper we released last December: early-stage venture investing belongs to a different asset class, with different qualitative properties, than later-stage venture investing. Studies of later-stage venture investments have suggested that exit frequencies follow an exponential distribution with more exits earlier and fewer exits later. Our results suggest the opposite: the exit likelihood of an early-stage company increases as it ages.

In the first months after a seed investment is made, there are many more markups than exits, as companies raise their Series A rounds. Eventually, though, the rate of exits catches up with the slowing rate of new first-time markups. We found the tipping point — where an exit becomes more likely than a priced round — was about 40 months into a seed investment. Writing from early 2020, that means that if you made a seed investment in 2016 that hasn’t done a priced round, chances are your next update email will be an acquisition or wind down, rather than a Series A.