August 29, 2022

One symptom of tougher funding: seed founders raising extensions

A more difficult funding environment is driving the increase in extensions

Selin Bucak

4 min read

Ivan Beckley. Credit: Suvera

The founders of French fintech Formance received an unexpected call shortly after closing their $3.1m seed round in May. Another investor was calling and wanted in. 

Although unplanned, Formance chose to raise an additional $650k from a completely new investor, France-based AXC, giving it a further runway to fund its growth plans, the group tells Sifted. 

Generally seed rounds are tied up and closed once they're done. But more companies like Formance are raising extensions — in other words bringing on more investor cash, usually on the same terms as the seed round. Sometimes that’s from the same investors; sometimes from new ones. 


It's difficult to get exact figures for just how many seed extension rounds have been done this year in Europe, as databases like Dealroom and PitchBook don’t track them as a separate entity. But anecdotally, investors and founders highlight a definite increase as founders worry about raising future rounds in a more cautious market. 

Marc Menasé, founder and CEO at VC firm Founders Future, says he's seeing round extensions almost every day now — a very different picture to a year ago, when the capital hosepipes were on full blast.

“The seed stage was super crowded a year ago and deals were going super fast, investors were super motivated, quick and flexible in the decision-making processes,” Menasé says. “Today you still have a very high number of new companies coming to market but it takes longer to raise.”

The dynamics behind more round extensions

According to Bartosz Jakubowski, principal at Alven, there are two dynamics at play. 

First, companies that raised a seed round three to nine months ago — thinking they would be able to raise again in 12 months’ time — are now unsure because they haven’t yet advanced their business enough to go for Series A. 

Jakubowski says that includes companies focused on crypto who have been exposed to price volatility and are grappling with fading interest in the sector, as well as those that have more complicated technical products with research that's taking longer than expected. 

“These are not in a position to raise Series A as the criteria are a bit more demanding than they were last year,” he says. “Last year, you could raise if you had between €300k-500k in annual revenue. Now it’s back to 2019 levels where it needs to be €1m. But most of these companies are not there yet.”

Founders who understand they can’t raise another round yet and just need a bit more fuel are actually well received by investors, Jakubowski says.

Now it’s back to 2019 levels where it needs to be €1m. But most of these companies are not there yet

On the flip side, extensions are also being driven by investors realising their portfolio companies may need some extra runway but would be foolish to go to market in the current environment, given they'd probably waste their time raising at worse terms or not being able to raise at all. 

While Alven hasn’t done this yet, Bartosz says he’s seen a lot of peers giving additional capital to portfolio companies. This can come with some requirements like cutting costs and reviewing the business plan with a focus on rational growth. 

Meanwhile, some VCs are reaching out to the startups right after they announce a raise to get into a deal they may have missed. 


“What’s also happening is many investors are thinking ‘what are the good deals I missed in the last 12 months', and whether it’s a good time to revisit those, now that the power leverage has shifted from entrepreneurs to investors,” Bartosz adds. 

👉 How to spend your seed funding

Selling the extension story to investors

Other companies that have extended their seed rounds include elderly care platform Lottie, which raised more than £6m in a round led by General Catalyst; investor relations app Quartr, which raised $2.6m; and virtual care platform Suvera, which attracted £5m in new funding. 

Suvera's extension was a year after it raised its seed capital. Cofounder and CEO Ivan Beckley says that as they got closer to thinking about the next round, they realised the market was much more unstable than it had been.

“We considered raising a full Series A and had initial offers, but the timing and the nature of the offers weren’t going to be as strong as doubling down on existing investors. It’s less capital than a Series A, but it will help us reach a milestone and then we can close a more significant Series A,” he says. 

Although it was an extension round, as it was a year after the initial fundraising, the terms were different and it was at a different valuation. 

But just because founders are increasingly turning to extension rounds doesn’t mean they'll be easy to raise, according to Menasé. 

Founders need to prove that they’re not just doing a round extension because they burnt through too much money and will continue to spend at the same rate, he says. They need to show investors that it everything in the business is moving in the right direction, but they don’t want to spend time fundraising. 

“I’d be very careful what narrative I’m going to tell the investor, explaining you’re doing the extension due to all the unit economics improving,” he adds. 

Selin Bucak

Selin Bucak is a freelance finance writer based in Paris. She tweets from @SelinBucak2