229. Seed Crust: Year of the Bridge

VC Minute
Peter Walker dubbed 2023 "The Year of the Bridge Round." In many cases, the founders did what they set out to do, it's just that the bar for Series A moved.

VC Minute – quick advice to help startup founders fundraise better

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Rich Maloy:

This leads us to the fact that inside rounds are on the rise. You called 2023 the year of the bridge round. If you listen to the VC Minute, you know I say, never say “bridge” because an investor can no more think about a bridge to nowhere than you can not think about a pink elephant when I say, “Don’t think about pink elephants.” You always want to call it an insider round, an extension round, your Seed 2, your Seed Plus, whatever you want to call it, but it’s all the same, and this is up way across the board.

What’s happening here is that startups are coming back to their investors and saying, “Oh, we’re so close, so close. We just need another million, another 2 million, to get us to the next level.” And that next level, then we’ll break through.

Peter Walker:

The other thing that’s happening is that you know, you raised your seed round and you were a good founder, so you looked ahead and you said, “Okay, here are the metrics I’m going to need to hit to get to A.” And then you came back a year and a half later, and you realized all the A investors had completely changed the metrics that you needed to get to A. So then you go back to those original seed round investors and say, “Look, I hit my plan, but that plan was wrong because it didn’t take into account the growth in the underlying metrics that we’re going to need to hit.” And that, it feels as though underneath these founders, the ground is shifting because it is.

Rich Maloy:

Do you see that the rounds are smaller now? It’s not about the valuation, but the dollars?

Peter Walker:

In the primary seed rounds, no. The median on Carta was like 3, 3 and a half million for a primary seed. But bridge rounds? Yes, so bridges—excuse me, Seed Plus, Seed Extensions—typically go off at, call it a million bucks, maybe a little bit more. This is actually another great example of the barbell effect. There are a lot of extensions given to companies that are just trying to hit the next round and trying to get to the right metrics. And then there are some extensions that muddy the data, where the VC is so excited about that PortCo that they’re trying to preempt the A before they get there. Both of those things are happening, and it makes it a little bit of a weird picture. In general, round sizes have remained pretty robust. It’s just that fewer companies are getting those rounds.

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