What the Seed Funding Boom Means for Raising a Series A

http://firstround.com/review/what-the-seed-funding-boom-means-for-raising-a-series-a/

by ca98am79 • 11 years ago

91 18 11 years ago

cj• 11 years ago

Really great post, definitely required reading for anyone who has raised a seed round.

I've personally seen a few startups affected by this. The bar for raising a Series A round is a lot higher than a lot of seed-stage founders think it is.

If you've raised a seed round, talk to your investors / mentors ASAP and figure out what metrics you need to hit in order to raise a strong A round.

salimmadjd• 11 years ago

Excellent post.

I would put the key findings on the top. I'd also include there the 18-24 month run rate. That's what most people want to know, include myself who is going through that process now.

As a follow-up post, I'd love to see a simple run rate calculator with items that most of us don't think about or consider.

super-serial• 11 years ago

I hate reading articles like this.

Seems like people like this live in a different world. I'm just grinding everyday at my 9-5... then I go to a coworking space for my "5-9" to code my startup. Reading stuff like this makes it seem like everyone else just puts FizzBuzz in an iPhone app and gets $100k funding.

themartorana2• 11 years ago

We never sought funding, and our revenue is north of $1m. It took 3 years, and lots of sweating, and lots of risk, but we own 100% of the company and bank 100% of the profits. We're up 40% year-over-year, which means we can hire more people. Lots of people will laugh at 40% - "that's not 1000%! How will you ever get to $1B??" This is the world we live in.

It seems to me, 4-6 years ago there was a healthy dynamic between funded startups and bootstrapped businesses. Now, I rarely hear anything about bootstrapping, as if getting funding won the day, and now bootstrapping is laughed at.

You can't begrudge every business that raises $100k. That's an insanely paltry amount, and anyone giving that money away both a) expects the founders to live on ramen and Red Bull and b) makes 99 similar bets in hopes that just one of them won't fail.

People should start believing in sustainable businesses again, not that their "Tinder for dogs" iOS app will become a billion dollar business. Because - and here's the truth - they almost definitely can't.

Do your 5-9 because you one day want it to be your 9-5. Build a 9-5 you want to work at for years. Build a business, not a startup.

Building > begging. Trust me, it's a wonderful feeling.

cylinder• 11 years ago

Good for you and thank you for the inspiration.

I've been an entrepreneur since I was a teen in the early Oughts before this latest "startup fad" began.

It's disheartening, really, to see all these nonsense startups run by people with little to no business acumen raising millions, just because they look and talk the part or have the right connections. Go and browse AngelList, there is some real garbage on there with $5M+ in funding.

This funding is creating distortions in the market and allowing shitty companies to stay alive and crowd the marketplace because they've got a war chest.

True business-people absolutely hate to give away even a small piece of their business unless they have to. Real business-people want to make money (profit) rapidly! These cashed up startups seem to have no interest in that. It's just about the next round of millions so they can brag about their "valuation." Everyone needs to struggle when they build their first businesses, not pay themselves six-figure salaries at 25 yrs old with their investor dollars until the cash runs out.

These are software companies we're talking about, they have very little capital requirements to enter the market. These are not airlines or skyscraper builders.

(Of course there are a lot of brilliant innovative startups active right now and they need money for some runway. At this point they are in the minority. There's a lot of rif-raff out there)

api2• 11 years ago

I don't laugh at bootstrapping at all, and have tons of respect for people who can do it all the way. But sometimes some runway is needed. But by all means you should bootstrap as far as you can go that way. The more you de-risk and get traction bootstrapping, the better the terms will be if you do raise... By a huge margin.

I too do not understand some of these things that raise millions on nothing. Don't get it at all. The only thing I can figure is that they have some connections, or there is something funny going on.

patio11• 11 years ago

Now, I rarely hear anything about bootstrapping, as if getting funding won the day, and now bootstrapping is laughed at.

This is a filter-bubble sort of problem. If you get your news from TechCrunch/etc, yes, that makes a lot of sense; TechCrunch long-ago decided that bootstrapped businesses do not maximize page views. If you hang out in the bootstrapping world, it is a very exciting time to be alive.

eru• 11 years ago

Actually, if you keep 40% up for a while, you'll get to pretty big numbers, too. Exponential growth and all that.

Growing a thousand-fold takes 20 years at 40% a year.

hnnewguy• 11 years ago

it seem like everyone else just puts FizzBuzz in an iPhone app and gets $100k funding.

Sometimes I get the impression that simply getting funding is the goal and symbol that you've "made it"; a viable business is secondary.

GFischer• 11 years ago

Well, undoubtedly it does sound like everyone is getting funding, but I'd also caution you that the value of a startup is not always equal to the amount of coding involved.

I know of a startup/bootstrapped company whose product is incredibly simple code-wise (simply a web frontend connected to a wifi-enabled ticketing machine which is the interesting part), not "FizzBuzz" but less than two weeks' code, and they're solving real needs for their customers.

Should they be less worthy of seed funding than your (presumably complex) solution? Ok, so their barrier of entry is way lower, but I'd probably fund it (If I had any money that is :) ).

StartupLSatoshi• 11 years ago

Great article by a guy who truly knows what he's talking about. Josh was one of the investors in Uber's first round of outside financing, back in 2010.

The tl;dr

- don't assume VC inbound means that you'll be able to raise a series A.

- it's easier to raise less, and increase the amount if the round is oversubscribed (having a higher target and having to cut it is a strong -ve signal)

- raise a larger seed. $2.5mm is a number Josh gives in the article. [note, that doesn't mean you should go and raise a $10mm seed round and expect to be evaluated the same as other series A companies when you raise one - smart investors will evaluate your progress relative to how much you've raised]

- pick seed investors who are good at helping seed stage companies. [josh and frc are a great firm, behind some great companies - obviously this is a content marketing piece, but in this case it's also totally true]

- make sure you have enough seed money to reach the key milestones that you need to hit, where those milestones make you an attractive target for a series A

- your seed investors can help prepare you for the A. in many cases, this is exactly how they view their role.

jayshahtx• 11 years ago

This is an excellent article - many of my mentors have guided me not to pursue funding for as long as possible, until I'm cash flow positive, etc and its great to see a discussion on HN reinforcing this sentiment. In a day and age when so much can be accomplished with just a laptop (git push heroku master), I am surprised bootstrapping is not a bigger topic of conversation.

mgav• 11 years ago

A few great excerpts from the article:

founders vastly underestimate the risk of busted financing
It's vital that you have a clear picture of the traction and proof points you'll need to show investors when you eventually do raise your A. And these proof points have to both demonstrate a significant jump in valuation and de-risk your concept
Keeping your burn rate low until you have product-market fit will give you the best chance at building a big company.

What the Seed Funding Boom Means for Raising a Series A

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