Seed Funding Fell Hard In These Sectors

Editor’s note: Previously, we looked at the state of seed-stage investment, including a trend toward larger seed rounds. 

While 2024 was an up year for venture funding, the narrative did not extend to seed investment.

U.S. seed-stage investment1 actually declined a bit last year, driven by a steep drop in reported rounds, and global funding was flat. Although we did see robust investment across some hot spaces largely driven by the AI boom, this was more than counterbalanced by decreases elsewhere.

The declines in seed funding were particularly pronounced in a handful of industries, including several beset by disappointing performance of startups funded in recent prior years. Below, we look at four of these areas.

Food and beverage

We all have to eat and drink and, anecdotally, it sure seems like most of us are spending more on these pursuits. However, that hasn’t translated into strong seed funding around these themes.

In 2024, reported U.S. seed funding to the food and beverage space 2 totaled just $275 million, a 47% decline from the prior year. It was the lowest annual tally since at least 2017, per Crunchbase data.

Diminishing investor appetite for seed deals around alternative protein was one contributing factor to last year’s weakness. While VCs were bullish on the cultivated meat space a few years ago, their outlook soured as commercialization has proven more onerous than optimists anticipated.

Still, we did see some good-sized rounds for compelling upstarts innovating around edibles and drinkables. Some standouts include: Aniai, developer of a robotic kitchen, Sprinter Spirits, a maker of sparkling drinks with vodka, and David, which sells low-calorie protein bars.

Cannabis

Founders and VCs once had high hopes for opportunities around marijuana legalization. But cannabis has consistently proven a tough space for startups.

Given the paucity of successful pot-related exits to date, it’s not too surprising to see that seed funding to the space has cratered. Even so, the magnitude of declines is striking, with just $11 million in reported seed funding in North America to the space in 2024. That’s a fraction of year-ago levels and the lowest annual total since 2013, per Crunchbase data.

So who did manage to secure funding? The largest seed rounds included a $2.6 million financing for Bliss Co, a New Jersey-based craft cannabis brand, and a $2 million investment in Kiefa, a software provider for cannabis producers.

Virtual reality, augmented reality and virtual worlds

For years, startups and established tech companies alike have promulgated an image of the future in which we’d be spending more time in high-tech headsets, interacting in increasingly elaborate virtual worlds.

That vision hasn’t come to fruition, nor have great returns on funded startups in the space.

Even tech heavyweights have struggled. Apple failed to make a splash with its pricey Vision Pro headset, which debuted last year to sluggish sales, while Meta has largely abandoned its metaverse ambitions.

Seed investors have taken note. U.S. startups in the augmented reality, virtual reality and virtual worlds spaces attracted a reported $41 million in seed-stage funding in 2024 — down more than two-thirds from the prior year. Global investment also fell sharply.

The stats seem a bit less dismal when one considers that graphics and gameplay for the broader gaming industry keep getting more sophisticated. The best are able to deliver an experience that feels quite a bit like entering an alternate reality — VR headset not required.

Seed funding to the gaming industry overall, meanwhile, held up well in 2024, with about $828 million in reported financings globally, relatively flat year over year.

E-commerce

E-commerce is a pretty mature industry today, as evidenced by the delivery trucks regularly circling our neighborhoods and the fact that you can order pretty much anything, from dinner to a tiny home, with a few clicks.

Even so, we’ve long seen robust funding of startups in the space. Investors have historically taken a particular fancy to those extending offerings to underserved geographies and industry categories or improving the shopping and fulfillment experience.

This was reflected, until recently, with global seed funding to the space regularly exceeding $1 billion. In 2021, more than $3 billion went to seed deals in the space, and even amid the 2023 slowdown funding hit $1.2 billion.

But 2024 was an anomalously weak year for e-commerce seed investment. Global funding declined 35% year over year, hitting the lowest point since 2023.

U.S. investment fell particularly sharply. Just over $200 million went to seed deals in the space, less than half of year-ago levels.

Still, we did see some good-sized deals getting done. Among U.S. companies, larger funding recipients included G2 Reverse Logistics, a developer of software for managing returns, Arcade, an AI platform for creating custom jewelry, and Big Sur AI, which offers AI shopping assistants and product recommendations.

A cyclical thing?

With a new year upon us, we’ll be following closely to see if today’s beaten-down sectors for seed funding might blossom into tomorrow’s hot areas.

Certainly some industries — food and beverage in particular — aren’t likely to stay down for the long term. Consumers are always looking for tastier, healthier, cheaper and more sustainable meal and snack choices, something big brands are slow to deliver.

For cannabis, it’s looking increasingly possible that this was not a venture-friendly space, with legalization and decriminalization of marijuana yet to pave the way for businesses that are ultimately successful on public markets.

To offer a flip side viewpoint on the seed space, we’ll also be taking a look at the sectors that saw a rise in funding. As you can probably guess, AI will feature heavily. Stay tuned for the rest.

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Illustration: Dom Guzman