VC Minute – quick advice to help startup founders fundraise better
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Rich Maloy:
You have more money at Seed than ever before, and this has caused Series A to raise the bar. Peter, this is your graduation rate chart. What’s your take on this one?
Peter Walker:
Graduation rate in this case simply means we did an analysis of the percentage of companies that raised a priced Seed round that ended up getting to Series A within two years of their Seed. If you raised your Seed round in Q2 of 2020, more than a third of those companies got to an A within two years. If you did the same thing in Q1 2022, only 12% have gotten to the A in two years. Obviously, there will be people that get to A after the 2-year mark, but it is illustrative of the slowdown from these vintages. There’s just a consistent cross-industry slowdown in the percentage of companies that can break through from Seed.
And then what are they doing instead? Bridges, extensions, convertible notes, crowdsourcing sometimes. There’s just an agglomeration of so many different ways to get money into a business. But those are not the same thing as moving along the venture stages and actually achieving the metrics that you need to get to A.
Rich, I think the point that you’ve made really well here is, it’s not like those companies just go away. They’re crowding the market. They’re crowding attention from people who are looking to invest into A’s, et cetera. And then they have to make a choice of, do we try to keep going? Do we try to shut down? Do we try to sell ourselves? And those decisions are made over a weird timeline. So it’s this messy middle in the earliest part of the market.
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