I love this line from @Naval:

“The real winners here are going to be the seed funds and early stage VCs that can write a $1 million to $2 million check,” says AngelList co-founder Naval Ravikant. “They’re buying into companies post-seed funding, with traction, at prices that aren’t significantly higher than angel prices.”

Sarah Lacy says that "Any shakeout moves more slowly than you’d expect. Entrepreneurs are survivors by nature."

Well said.

Great line from First Round Capital that the stigma previously associated with adding to a seed round does not exist in 2012:

Meanwhile, there’s been a surge in follow-on seed deals. Investors like First Round Capital and Jeff Clavier’s SoftTechVC all report doing way more of these than they have in the past.

“It’s not the normal course of things, but you’re seeing a lot of companies raising second and third seed rounds,” First Round’s Josh Kopelman says.

And not all of these have proven to be dogs. Some, like TaskRabbit, just needed a bit more time to get to that magical and vague term “traction.” “At some point, they won’t be able to raise a third or fourth extension,” Kopelman says.

TaskRabbit is not a seed stage company, btw.

But yes, still the question: WHAT DOES TRACTION MEAN?

Most conservative definition of traction is that the business is going so well that the company does not need investment. Examples include GitHub, Imgur, and Reddit.

@alexia's thoughts on the fact that only 20% of current seed stage Startups will survive: RIP Frothy Times

This is also interesting:

“The numbers just don’t add up,” says Jon Callaghan of True Ventures. “There are a minimum of 2,000 companies per year getting funded and coming out if incubators, and there are only 750 VCs that call themselves ‘active.’ But when you look at who is doing at least two deals a quarter, the numbers fall to just 200 firms. Those firms are only going to do a few Series A deals a year.”

When you look at the number of firms who invest at least $1 million a quarter for at least four straight quarters, the number drops further:

To a paltry 97 firms.

Just 97 firms?! Wow, that's much smaller than I thought.

Fred Destin tweeted a list of sub-$200 million VC funds that have raised money since April 2011: You can see them in this Google doc.

Shai Goldman tweeted: "Small VC funds are getting traction with investors - in the past 12 months, 18 VC firms have raised new funds below $150M."

If you want to discuss that list, I made a separate page for the list.

The rise of small (or as I liked to call them, traditionally sized) VC funds isn't surprising.  There's a preponderance of evidence that small funds deliver better performance. However, big funds produce more management fees!

Interesting, I read the fact that ONLY fifty small VC firms have raised funds since April 2011 to mean that actually the small funds are the minority of venture capital.

That they're not rising at all. They're just a small part of the ecosystem.

And that they have to work just as hard as the seed stage companies at getting the big VCs to fund their companies.

What it comes down to, is very few people are willing to work for free. Ultimately if everyone really believed in a big payout at the end of the tunnel, they'd work for little enough to cover housing/basic expenses.

Which means that smaller teams can survive like cockroaches ...

$1m to a team of four, could cost between $2,000 and $10,000/mo depending on living situation. $10,000/mo burn...would last a really, really long time on a $500k raise. 

The whole point of startups isn't to eek out a survival.

The point is to grow as fast as possible, not last as long as possible.

@lizgannes says not all apps can be Instagram but someone might be willing to buy them.

I've joked for some time that if I were raising a VC fund, I'd call it Second Round Capital, and I'd do nothing but pick off seed deals that needed more money on attractive terms.

In 2012 you'd make a fortune. There are hundreds, possibly thousands, of such deals coming in the next year.

Facebook was launched the year Google went public. Can't wait to see who's next. ~@chchien

 I suppose it's wrong of me, as a cash-positive bootstrapper, to look at this as great news. Really wondering how much runway my venture-funded competitors have left and how much time they are spending chasing the next funding round that will never materialize.

The problem is that your venture-funded competitors will make a lot of noise along the way. That can scare customers out of your market if they do it wrong.

But rarely do startups go gently into that good night.

What Crunch?

Cinemagram just raised $8.5mm, Wikia $10mm, Rent the Runway $20mm, and Evernote another $85mm.

It's not a Crunch. It's winner-take-all.

See also: Let's all shed tears for the crappy startups that can't raise any more money, by Dan Lyons