The Rise Of Seed Two Rounds and Why It's Important

Seed gets the buzz. Series A gets the glory. But we don’t talk about the stage in between where so many startups quietly stall out. As rounds increase, so do expectations, and founders caught in the middle get left behind. There isn’t just a funding gap. There’s a blind spot in the startup ecosystem.

But here’s the good news: that blind spot is finally coming into focus, and what we are seeing is opportunity.

By now, everyone knows the venture market has changed. The breakneck pace of 2021 is over, exits are slowing down, and investors are more cautious than ever. Buried beneath the headlines about AI megadeals and dry powder is a quieter crisis on the startup landscape, one that’s quietly killing off promising companies before they have a chance to grow.

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The Funding Dead Zone

In theory, the startup funding journey is linear: raise a seed round → prove traction → move on to Series A. In reality, that path has developed some sinkholes.

In 2024, Crunchbase reported that only 36% of 2021 seed startups and 20% of those from 2022 had made it to Series A, a sharp drop from 50% - 60% for companies seeded in 2018 - 2020.

Startups are getting stuck in a place where they are too mature for another early seed round, but not far enough along to unlock a Series A.

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A New Path Emerges

This is where follow-on seed rounds, or “Seed Two,” come in. Rather than watching early momentum fade, investors are stepping in to bridge the increasingly wide chasm between first money in and institutional momentum.

It’s not a stopgap. It’s a strategy that has been around for a few years, but about which many people are unaware or not taking advantage.

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Why Series A Funding Has Slowed

There are several forces creating the bottleneck:

• Valuations got ahead of traction. During the boom, many companies raised at inflated valuations. Now, Series A investors are hesitant to follow on unless the growth justifies the price.
• IPOs are in a downward spiral. The venture ecosystem relies on recycling capital through exits. But as high-profile companies postpone or cancel IPOs, liquidity is drying up. and with it, the willingness to fund the next wave.
• Caution is the new normal. After years of aggressive investing, many VCs are pulling back, choosing to support existing portfolio companies over making new bets.
• The bar is higher. Founders are expected to show not just product-market fit, but significant traction and scalable growth models before even being considered for Series A.

According to Carta data (via TechCrunch), 966 U.S. startups shut down in 2024, a 25.6% increase over the year before. AngelList found a 56.2% rise in closures, and those are just the ones we can count.

So, what happens as Series A moves further out of reach? And what happens to the billions already invested in startups that never get the chance to scale?

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A More Optimistic Future for Startups

The implications may look stark, but this is a moment of possibility. The companies in the Seed Two stage aren’t long shots. They’re real businesses, with customers, data, and hard-won lessons behind them. What they need isn’t rescue. It’s runway.

As a founder with three successful exits, I know what it takes to navigate this critical stage, and what founders need to succeed. That firsthand experience is what drives our approach.

We created SeedTwo to meet this moment – to back companies that have made it past the chaos of early seed and are ready to build something lasting. We believe it’s where the next generation of breakout companies will come from.

Yes, the bar is higher, but the founders coming through today are sharper, scrappier, and more focused than ever before. They’re building with discipline, doing more with less, and proving, day by day, that resilience might be the best predictor of long-term success.

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What We Do

We invest in startups that have shown traction, built products people want, and survived the chaos of early seed, but need more time and capital to unlock real growth.

Our team brings not just funding, but operational expertise, go-to-market support, and founder-first partnerships. We’re here to help strong companies get stronger, navigate the Seed Two stage with confidence, and raise the kind of Series A they deserve.

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