1H 2023 Los Angeles Seed Report

We’re excited to share the most recent update of our LA Seed Report, encompassing all seed funding to SoCal companies in the first half of 2023.

As always, we’re going to start with the big picture. In the first half of 2023, global funding “reached $144 billion, marking a 51% decline from the $293 billion invested in H1 2022 and a 10% decline from the second half of 2022” (Crunchbase). Isolating seed stage funding, 1H ’23 fell 41% year over year and 18% since the second half of 2022. Q1 and Q2 marked two more downwards steps for venture funding since Q1 of 2022. For the first time since 2021, global seed funding proved just as impacted as broader venture funding — indicating that the earlier stage’s inoculation might have finally worn off.

When we look at Los Angeles deal-making, the first half of 2023 represented a 20% decline in dollars deployed against the first half of 2021 (down to $433 million from 2021’s $539 million). In terms of deals done, 1H ’23 saw a 28% decrease (96 down from 134 in 2022). But combining Q1 and Q2 conceals a really interesting aspect of 2023’s developing story.

Looking back at Q1 of 2022, LA saw 71 seed deals done and $265.19m deployed. This year, Q1 saw only 29 deals and $133.7m deployed (marking a 60% decrease in deals done and a 50% decrease in dollars deployed YoY). Were it not for VC’s seemingly bottomless zeal for AI, the first half of 2023 might have been dismal — yet funding rebounded with a fury in Q2, seeing a 124% uptick in capital deployed Q0Q and a whopping $299.51m spread across 67 companies. This increase dwarfed the same interval in 2022 which saw just a meager 3% increase. Comparing Q2 ’22 with Q2’23 reveals that the second quarter of 2023 was the first year over year uptick in funding we’ve seen since the tail end of 2021. We’re eager to see if this optimism carries over into the second half of 2023.

When we turn to deal sizes, Q1 of 2023 saw an average round size of $4.6m with Q2 holding pretty steady at $4.4M. Of course, when we exclude the monster deals above $10m, the average drops to $3.3m in Q1 and $3.8m in Q2. But the monster deals are worth considering, because Q2 ’23 saw more of them than any quarter we’ve tracked to-date, with 23 companies receiving over $6M in seed funding (the prior record holder was Q3 ’22 with 15 deals over $6m). All deals included, and assuming 20% dilution, it looks as though the average post money valuation for seed deals clocked in at $22.5 million.

So where did all that cash go? E-commerce continued to take up a smaller and smaller chunk of deals done (with just ten this half). In the first half of 2022, e-commerce comprised 20% of deal volume, in the second half, 13% and in 1H ’23, it was just 10%. Blockchain companies fell steeply as well, receiving a meager 10% of capital deployed in 1H ’23 (after having eaten up 20% in the first half of last year). We can only imagine that AI played a substantial role in helping SaaS pull even further in front of the pack. Looking back to 1H ’22, SaaS received 38% of all capital, 2H ’22 got 37%, and in 1H ’23, SaaS climbed up to 45% with 43 deals done.

Below are a few key trends from LA seed deal activity in the first half of 2023:

• Getting more granular, average deal sizes increased by $500k YoY, up to $4.5m for 1H ’23 from $4.02M in 2021.

• Aerospace deals doubled year over year, indicating that LA is leaning into its history and investors are increasingly interested in hard industries (3% of all deals for 1H ’22 and 6.3% of all deals for 1H ‘23).

• Between the last half of 2022 and the first half of 2023, health and wellness companies jumped from 9% of LA deal volume, to 19%!

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(Our report covers seed deals that have been publicly announced. Please reach out to [email protected] with any questions or comments.)