🧮 How big of a deal is it, really?
The average deal size has decreased for most deal types since the start of the funding winter... except for Pre-Series A
After a pretty mad ‘funding heatwave’ that lasted from mid-2021 until mid-2022 on the continent (check the graph here), things have been relatively more quiet on the funding front, not just in Africa but globally. The question we’re asking today - and digging deep into our database to answer - is: How has that drop translated in terms of the amount raised through the average Seed or Series A?*
For Pre-Seed rounds, the median deal size went down from $900k to $700k (-25%); the average deal size registered a comparable drop (-29%). Btw, medians are probably the most interesting metrics to look at as they cancel out the effect of ‘extraordinary’ deals such as Wave’s $200m Series A in September 2021 (heatwave) or Yassir’s $150m Series B in November 2022 (winter) - respectively 5x and 4x times bigger than the second-largest deal in their category and period. A drop in both median and average deal size also happened for Series As and Series Bs, though with different levels of intensity. The median Series A deal value was almost flat between the two periods (-7%), while the average deal value fell by -24%. For Series B, the fall was much more dramatic, and the hardest of all deal types: the average deal value shrunk by -35% while the median deal value was divided by two (from $42m to $10m). In other words, with the exception of Yassir, all Series B deals we could track the value of since the beginning of the funding winter (19 in total) were below both the mean and average Series B deal value of the funding heatwave.
While the average Seed round value decreased between the two periods (-29%), the median deal size grew from $2.1m to $2.5m (+19%). The most noticeable growth though happened for Pre-Series A rounds, whose deal size grew double-digit for both the average (+30%) and median (+58%) deal size. Notably, an anomaly has been corrected as Pre-Series A deals are now - both on average and median terms - bigger than Seed deals, which was not the case during the funding heatwave. The growth in the size of Pre-Series A rounds in the past 18 months could also point to the fact that the label is now used more often by ventures not quite yet ready to jump from a Seed to a Series A round, especially in the current context.
I appreciate that this week’s post is maybe on the more technical side, yet we thought this type of analysis could be very valuable for both investors and entrepreneurs looking to raise. But we hope we didn’t lose too many of you… And in case you’re in need of a more generic refresher, consider checking out this post:
* A couple caveats. (1) While we have tracked over 1,600 $100k+ equity deals since mid-2021 in our database (discount code here), 53% did not specify a deal type. Interestingly, this proportion grew between the ‘heatwave’ (48%) and the ‘winter’ (58%). If you take into account the fact that 20% of the labelled deals did not have a confirmed amount but an estimate (which we did not include in this analysis), you have to be wary that except for Pre-Seed and Seed, sample sizes are quite small. (2) Also, we only track $100k+ deals. While most structured deals are likely to be over this threshold, it might mean the medians and averages we calculated for Pre-Seed and Seed deals are slightly overestimated.