What causes most startups to fail between Seed to Series A and how can you avoid it?

The Valley of Death for startups is a well-known concept in the startup ecosystem, representing the critical phase where a startup begins operations but has yet to generate meaningful revenue. Specifically, it often refers to the difficult period between Seed and Series A, during which a startup must prove its business model while facing resource constraints and uncertainty.

It’s disheartening to witness a promising startup, with a strong product and talented founders, struggle to meet milestones and fail to reach the market simply because they run out of cash and runway.

What causes startups to decline?

This challenge is particularly evident in the transition from raising a Seed round to Series A when many startups fail to establish solid product-market fit. Raising further capital during this period is tough, as investors demand more evidence of traction and efficient growth. According to The Harvard Business Review’s study, around 90% of startups fail in this phase, a staggering figure considering the global startup economy is valued at $3 trillion.

In the U.S., Carta estimates that only about 20-25% of startups that receive Seed funding successfully raise a Series A. In Europe, the situation is even more challenging; according to Sifted, the percentage of startups progressing from the early stage to the next round has fallen to just 10-15% in 2024 due to stricter venture capital criteria. Furthermore, in 2024 the bar for Series A has been raised significantly—startups must demonstrate stronger traction, including key revenue milestones or specific leading indicators, to attract investment.

During this early stage, startups must focus on finding initial product-market fit, which is critical for long-term success. Once a startup demonstrates initial traction and proves that there is genuine interest in its product, it is the first step to the next round, but the key is to use this period between Seed and Series A to build strong foundations. Regardless of the method, the fundamental goal remains: finding the right way to connect with customers and generate revenue as soon as possible.

How Do Successful Startups Navigate This Critical Stage?

The Valley of Death is a natural part of a startup’s journey, but overcoming it requires deliberate actions. Here are four critical steps founders can take to increase their chances of success:

  1. Build an Agile and Lean Team: Once you’ve raised a Seed round, focus on assembling a flexible, adaptable team while keeping operations lean. Foster a culture of agility so that your team can quickly respond to changing conditions. This agility will be crucial as your company scales along with the next round.
  2. Validate with Customers: Early customer validation is essential for proving product-market fit. Engage with potential customers to gather feedback and refine your product. Demonstrating genuine customer interest helps build credibility with investors, and having a loyal customer base can be a key advantage when venture capital is harder to secure.
  3. Set a Clear Strategy and Milestones: To prepare for the next funding round, develop a robust business plan with clear milestones. Series A investors need to see that your company is ready to scale—which includes streamlined processes and activities that drive future value, such as building a sales and marketing team.
  4. Choose the Right Investors and Manage Finances Wisely: Finding the right investors is crucial, as is managing your finances carefully. As a founder, you must ensure that your financial plan provides enough runway to weather challenges. That means you aim for at least 6-9 months of the runway when you start raising the next round, and your early-stage investor is there to provide tools like bridge funding when needed.

Conclusion

Navigating the transition from the early stage to the next level requires strategic planning and precise execution. Meeting investor expectations and demonstrating readiness to scale is essential to secure further funding and avoid falling into the Valley of Death.

Learn more about our founder’s accompanying program, The Evolver.