Insights on Seed and Series a Funding

I was talking to my friend Parul Singh about how too much VC money can be detrimental. I have been working with pre-seed/seed/A at and with companies for the last 20+ years and I have observed first hand that the saying “constraints breeds creativity” is true. In my experience, a company with 18 months of runway gets much more done in the second nine months than the first. 🪹 Pre-seed Companies: When you are in the “idea maze” (coined by Andreessen Horowitz) or “drunken walk” having too much money does not necessarily speed up progress. Of course you may need some money for founder living expenses but having a larger team wandering through the "idea maze" together doesn't necessarily make the journey go faster. There is a certain level of founder reflection that has to happen while navigating the “idea maze” and too many distractions (people, money) makes it hard. I teach an entrepreneurship class  (LeanLaunchpad) every year. Out of the eight teams we have navigating the “idea maze”, about half will test and land on a reasonable idea in just ten weeks (including a simple MVP and even some paid POCs). Total budget: zero. With the multitude of AI tools, time to PMF is accelerating. Check out https://lnkd.in/guM7Ymn9 (AI companies revenue >10x SaaS companies). 🌱 Seed Companies: When you are going from the “idea maze” to “product market fit” and are trying to first build a product that a few customers love and second build a way to acquire these customers efficiently, having too much money can actually be counterproductive. Why? Because too much money often translates to wasting time on things that don’t matter: you are not forced to focus on the features that are absolutely critical, you can spend in non-efficient marketing methods (skipping the crafting of the product-growth loop) and you can afford to over hire or to keep the wrong people onboard. 🅰️ Series A Companies: Post product market fit, when it is time to scale, money is absolutely critical. However there is one common failure mode: the “fake Series As”, the As that get overpriced without really having reached product-market fit. Take a seed in a hot space, a small team that has grown revenue to a few $100Ks or maybe even a million in just six months. There is little data on actual revenue stickiness or whether the founder-led sales motion can be replicated efficiently. There is a lot of competition to invest in the company and they end up raising $20M+ series A.  The founder feels confident, they are stretched-thin and they hire a bunch of folks. There is pressure to scale but the machine is not built yet (the product is not quite there, they can’t figure out how to get to customers efficiently) and things unravel. Venture money is like carbs: quality over quantity (not all money is equal); take in moderation (constraints bread creativity) and if you compete in endurance sports, you might need more carbs to perform well (if you are growing, you will need the cash).

Raising a seed? Carta just dropped fresh fundraising benchmarks for 2025. If you’re raising this year, here’s what these numbers don’t tell you (but you need to know): 1/ SAFEs aren’t "cheaper". They just delay the dilution hit. - A $10M SAFE cap doesn’t mean you locked in a $10M valuation. - When SAFEs convert at Series A, dilution can be way worse than founders expect. - If you stack too many SAFEs, you’re probably giving up more equity than you realize. 2/ Series A is shifting. $12M raised is the median, but traction expectations are way higher. - Raising on just vision is nearly dead. - If you’re raising $12M+ at $58.9M, expect serious scrutiny on revenue, burn, and GTM. 3/ Valuations are high, but so is investor pickiness. - AI startups skew these medians up. - If you're not an AI-first startup, your valuation multiple might look different. - VCs still have capital, but they’re writing fewer, bigger checks. 4/ Raising bigger isn’t always better. - The dilution difference between Seed and Series A is small (~20%). - But Series A expectations are way higher. Team size, traction, and retention must be locked. - If you can stretch Seed to true product-market fit, do it. These benchmarks are baselines, not rules. The best founders use market data to inform, not dictate, their raise. What are you seeing in the market? If you’re fundraising now, let’s compare notes.

This year, eight of my CEOs successfully closed Series A rounds, ranging from $9M to $45M. Here are 10 key takeaways from their experiences that can help you navigate your own fundraising journey: 1) Rounds took longer than anticipated. On average, they took twice as long as initially planned, largely because VCs are moving much slower than before. 2) There's no pressure for a VC to commit, allowing them to draw out the process. Many VCs strung founders along. My most effective CEOs leveraged backchanneling from existing investors and relationships to cut through the noise and focus on genuine interest. 3) VCs wait for signals. Don't expect a quick "yes." VCs often hold out until they see strong signals of other investors committing. Each CEO effectively had to build a coalition of interested parties. 4) Craft your FOMO. Every CEO found a unique way to create a sense of urgency and healthy competition among potential investors. This is a delicate balance; you don't want to push too hard and risk a "no." 5) Relationships matter. Every single Series A was led by a VC with whom the founders had a prior relationship from their seed round. Nurture those connections! 6) Prior investor validation is key. All rounds included follow-on investments from prior investors, serving as a powerful signal of confidence. 7) Two years of runway is essential. Be prepared to demonstrate a clear path to at least two years of runway. This shows stability and thoughtful planning. VCs are wary of short turnaround times and want to avoid emergency financing situations. 8) The bar for PMF is high. The bar for product-market fit and traction is higher than ever. Show strong, undeniable evidence of your market validation. 9) Be ready to adjust expectations. Some CEOs had to adjust down their original Series A expectation. They were able to put together operating plans that cut down on costs to stretch runway and do more with the original capital, thereby reducing their overall ask. 10) Your network is your net worth. The power of existing relationships and warm introductions cannot be overstated in this competitive landscape. The VCs who went deep didn't come from cold emails or random LinkedIn lists; they came from warm intros from investors or relationships the CEOs had personally cultivated. Good luck to everyone raising. It is possible! You just need to be thoughtful and have a strong support network behind you. Any other fundraising advice or challenges to share? #startups #venturecapital #founderstories #seriesA #siliconvalley

Later today, I'm giving a private presentation on the state of venture capital; but in the meantime, I thought I'd share some interesting findings: Early-Stage VC Q1 2023 vs. Q1 2024 (% Change from Quarter 1 Year Ago)* 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐑𝐨𝐮𝐧𝐝 𝐃𝐲𝐧𝐚𝐦𝐢𝐜𝐬 📈 Pre-Money Valuations: • Seed (Priced): $13.3M (🟢+15%) • Series A: $42.7M (🟢+23%) 📈 Round Size • Seed: $4M (🟢+21%) • Series A: $10.6M (🟢+33%) 📉 Dilution • Seed: $20% (🔴-9%) • Series A: $20% (flat) 📈 Down Rounds • 23% (🟢+19%) 📈 Time Between Equity Rounds • Seed (Priced) to Series A: 2+ years % (🟢+4 months) • Series A to Series B: 2.25+ years % (🟢+7.5 months) 𝐂𝐨𝐧𝐯𝐞𝐫𝐭𝐢𝐛𝐥𝐞𝐬 📈 Pre-Money Valuations on Safes/Notes • Seed (Bridge): $20M (🟢+33%) 📈 Median Interest Rate on Convertible Notes • 8% (🟢 +33%), trending up to 10% 📈 Prevalence of Bridge Down Rounds** • 29% (🟢 +118%) 𝐋𝐞𝐠𝐚𝐥 𝐓𝐞𝐫𝐦𝐬 📉📈 Non-Market Legal Terms • Liquidation Preferences >1x: 8% (🟢+8%) • Participating Preferred: 6% (🔴-42%) • Cumulative Dividends: 10% (flat) Analysis: The state of early-stage venture capital in Q1 2024 shows growth in valuations and round sizes, reflecting investor confidence, but there are cracks showing in the system. The increase in down rounds, reduction in deal count, and rising interest rates highlight challenges and a more cautious approach by investors. Legal term changes also suggest a mixed negotiation environment, with some protections for investors and favorable terms for founders. Zooming out, the data would suggest what we already know: there's a flight to quality as capital recedes and Fed interest rates stay stubbornly high. *All figures are from Carta's data for Q1 2024. Percentages in parentheses represent the change from Q1 2023 to Q1 2024 (i.e., 🟢 +8% means an increase of 8% from Q1 '23 to Q1 '24 ignoring Q2, Q3, and Q4 2023). Median values are used instead of average or mean where relevant. (Q1 '23 vs. Q4 '23) **From Aumni's data for Q1 2023 vs. Q4 2023. #venturecapital #startups #funds

Founders - your peers are selling about 20% of their companies in a seed round and another 20% in the Series A. This target ownership figure seems to be dictating a lot of the dynamics around valuations and fundraising amounts, as it remains relatively stable year over year as valuations rise and fall. Data below is for software companies raising priced rounds (just primary rounds, no bridge funny business). Over 9,600 rounds included, US only. Note that these figures don't touch on the expected dilution for hardware, biotech, or medical device companies. If you'd like that graphic, shout it out in the comments! 𝗗𝗶𝗹𝘂𝘁𝗶𝗼𝗻 𝗧𝗿𝗲𝗻𝗱𝘀 • 20% (or just above) is the median for seed and Series A, has been since 2021.    • Something just under 25% is the 75th percentile value for seed and A over the same time frame (so anything above 25% is pretty significant dilution).    • The least-dilutive deals are going off around 15% or so for seed and A.    • Structured terms (things like liquidation multiples over 1x or participating preferred stock) remain rare at seed and A, so these dilution numbers aren't masking underlying difficulties.    • 𝗙𝗲𝘄𝗲𝗿 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝗮𝗿𝗲 𝗿𝗮𝗶𝘀𝗶𝗻𝗴 𝗼𝘃𝗲𝗿𝗮𝗹𝗹 𝗶𝗻 𝟮𝟬𝟮𝟰 than did so in say 2021. These "missing deals" explain a lot of the dilution stability (in that the deals that may have dragged median dilution higher just aren't getting done these days). At the early stages, dilution is the metric that informs the rest of the fundraising values. VC funds typically go into potential deals with a target ownership in mind, taking into account the need for founders to remain incentivized as well as the expectation of future dilution from more fundraising. So 20% held steady even as valuations ballooned up in 2021 AND kept holding firm as valuations declined in 2023. Ownership > Valuation in negotiations, effectively. Really interested in digging into the composition of these dilution figures in later graphics (are single firms increasing their ownership? Are deals happening with more participants lately? Etc). But if this sparks other questions for you, let me know below. Don't miss any data from the Carta trove in our weekly Data Minute newsletter --> subscribe at the link in graphic! #startups #dilution #founders #venturecapital  

The Reality of Video Game Investments Even now, pre-seed and seed rounds are competitive for investors: everyone wants to be the one who discovered the talent and had the highest ROI. Fund investors expect VCs to do exactly that. This leads to situations where most VCs want to participate in the first round but are reluctant to join following rounds if they weren't in early. After all, what’s the point for LPs to back them otherwise? This is especially true for gaming VCs, where LPs expect not just financial returns from their VCs but also co-investment opportunities and market insights, so the funds with the best access to original deal flow win. This creates a vacuum at the Series A and later stages, which can be a brutal wake-up call for founders who previously enjoyed FOMO-driven fundraising because of their ex-Riot/Blizzard/you-name-it pedigree and had no problem raising their seed round at very (stupidly) good valuation, but now are struggling to raise their Series A. In the games industry, Series A is usually not about scaling a functional business with strong revenue yet. It’s more of a "market validation stage" - early KPIs, an MVP, a demo, or, in the best case, first revenue. So you raise to get exactly to this point. And then founders are left wondering: "How come? Where are all the investors? Why can't we raise the next round just as easily as the first one?" Exactly. That’s why: There simply aren’t enough growth-stage gaming investors and you are not yet attractive to financial investors - which is nuts! Because in my opinion, it's actually the best stage for financial investors: most of the stillborn projects are out, there’s real traction, the game will likely be released after this round, and there’s almost no competition — meaning you can get amazing terms. Still, while the disproportion is brutal, there are active growth-stage investors out there, both VCs and strategics. We are lucky to have great partners joining us and plenty of follow-on rounds in our portfolio. The first TGF fund is $50M, and our companies have raised close to $80M in follow-on rounds. Tell you what, it is crazy hard. And I am especially proud of the rounds where we invited our LPs to participate, and now those companies are doing pretty good. I just can't believe how different life is at Seed compared to Series A. It’s a different world. Do not forget that when you celebrate your successful seed round!

🧵 I hosted 14 NYC Seed and Series A VCs for a breakfast. Here’s what they are saying What are you seeing at the Series A? - Series As are hard because it’s hard to compare to the flat rounds from the 2021 vintage with $5M+ ARR who are doing Series A+’s - Many avoiding Series As as they would rather look at Seeds or Series Bs - Only seeing AI and super high performing companies get competing Term Sheets - Taking a Series A down round is the price of survival. Have had to have those hard convos. Founders who accept it early do better What changes have you made in managing portfolio companies or LPs? - Created an advisory council that are available on a monthly basis to answer questions and help - Meet with more strategic acquirers instead of just other VCs - For capital calls send out note explaining upcoming investments, why we invested and what’s happening with the company - Starting to provide benchmarks for our founders How do you view slower growth due to market vs execution? - A lot of products that scaled in 2020-2022 are and were nice to haves. Customers were willing to buy more products given they had higher spend so have to find the must have problems - Often times the market can be an excuse for soft growth - Have to make sure you have quality customers vs just high number of customers What have you found in your best founders? - Founder with velocity: we want to see how many versions of the product they have shipped. Speed of iteration has been a high indicator of success - Founders with Agency: they often are the ones with more competitive rounds as well - Founders who are transparent: they communicate with us in good and bad times - Founder with an action bias: this leads to their top 5 employees being very strong so we interview those early hires as well

Closing a pre-seed or seed round means nothing when trying to close your Series A. So many of the founders I work with struggle to raise their A here’s why: You aren't focused in the KPIs and metrics Series A investors are focused on. Seed investors DO NOT focus on: - Customer acquisition cost (CAC): Less emphasis on CAC as the focus is on finding product-market fit - Customer lifetime value (CLTV): Difficult to measure at this stage, but potential for high CLTV is important - Revenue: Minimal or no revenue. Focus on potential and market opportunity Seed investors DO focus on: - User growth: Focus on rapid user acquisition and engagement - Burn rate per user: Measures efficiency of acquiring and retaining users - Product usage metrics: Shows how users are interacting with the product and identifying areas for improvement As a reminder, seed investors are more understanding of risk and uncertainty and really focus on the potential of the team and idea. Series A investors are more demanding, requiring validation of the business model and a clear path to growth and profitability. Here's what metrics Series A investors focus on: - CAC: More emphasis on unit economics and showing a path to profitability - CLTV: Shows the potential for long-term customer value - Revenue growth: Demonstrates the ability to scale and generate revenue - Customer churn: Minimizing customer churn is crucial for sustainable growth - Sales pipeline and conversion rates: Shows the ability to generate and convert leads into paying customers - Marketing return on investment (ROI): Measures the effectiveness of marketing efforts in driving revenue I was on a Goodie Nation call yesterday with Joey Womack and this was part of the discussion so thought I'd share. TL;DR Make sure your financial metrics match the stage you’re at. The later the stage the more detailed your financial metrics and KPIs need to be.

Series A is not a bigger Seed round, it’s a different game. And yes I know it after raising $456M for our clients. At Seed, investors bet on potential. At Series A, they bet on proof. This is where many founders get stuck. They expect the same narrative to work, just with higher numbers. But Series A investors want answers to very different questions: - Are you growing efficiently or just burning cash? - Is there real product-market fit, not just hype? - Can this team scale and lead a category? To raise a fast, confident Series A, you need a system that: 1) Tracks your key metrics consistently Especially burn multiple, growth rate, and retention. No more vanity metrics. 2) Shows how capital will unlock the next inflection point Not just spend plans, but outcomes. 3) Builds investor trust months before you raise Updates. Milestones. Warm intros. Consistency builds conviction. Series A rounds get done in weeks, because the founders behind them started prepping months ago. Set the foundation now so you don’t stall when it’s time to scale. #seriesa #capitalraising #startups #venturecapital #founders #capwave

I'm listing the typical fundraising stages as I know them and the abnormalities I see in the market right now what rounds used to be: 🌱 Seed Round- prove value hypothesis 🌱 the what: what are you going to build the who: for whom is it relevant the how: what's the business model associated with it => Prove the audience is desperate for your product, which means you have a product market fit. 🌸 Series A - prove growth hypothesis 🌸 can you acquire customers at a cost-effective price 🌳 Series B - prove scale 🌳 you know customers want the product you know you can acquire them cost-effectively Series B gives more capital to acquire them abnormalities i see now: Seed 1. VCs invest knowing the what and who, but ignore the lack of how - founders receive money without having a business model or a thesis on how they'll give that money many times back 2. more and more founders just raise from angels, AI brought even larger angels out and party rounds are back. Founders proceed without a lead - web3 vibes 3. inspite of only 2 LLM infrastructure companies growing above $5M ARR, infrastructure seeds are priced high $35M+. SaaS is cheaper and has higher revenue which makes infra VCs now to chase SaaS 4. infrastructure companies who can't find PMF, pivot to a vertical, they are not SaaS, but specialized infrastructure for that line of business or industry 5. the vertical is getting crowded with applications and tools/infrastructure to build for that use case - you can get the chatbot for customer support with all the integrations and workflows or you can get 10 tools to build the customer support chatbot/copilot Series A 1. many raise the A without proving their audience is desperate for the product 2. the audience often times tries the flavor of the day LLM cool product and quickly churns 3. Series A investing resembles more seed now, hype and AI pedigree overindexed and overshadow the lack of business model or business acumen Series B 1. it's hard to find a healthy AI company where the customers are desperate to buy the product and they are also acquired at a cost effective price 2. AI shininess blinds investors who quickly forget the sales efficiency benchmarks and the countless hours they spent blogging about them 3. have forgotten eyeballs != growth persistence overall 1. over-optimism from vcs that startups will find a business model - "they'll figure it out" 2. the rise of the "AI influencer" CEO customary guest on all podcasts, and speaking at events while neglecting product engagement 3. 2021 deja-vu for AI companies that gather lots of eyeballs - who cares that the company is pre-revenue "they'll grow into it" - will they?