What's 🔥 in Enterprise IT/VC #324

The world has fully reset on round sizes at early stages - what does it mean for founders?

Jan 14

If you’re wondering what VCs were doing over the holidays, I’d say they were collectively 🤔 about how to deploy capital prudently with the right founders building the rights kinds of businesses (efficient). As I always have a few portfolio companies out in market talking to investors, what I can unequivocally tell you is that the world has finally reset for round sizes (click for comments as well).

Ed Sim @edsim

Founders, the world has reset on round sizes. Yes there will be anomalies but anomalies require more buy in First rounds $3-4 vs $5-6M Series A $8-12 vs $15-20M Series B $20-30 vs $30-40M Yes, you’ll sell more of your co for less 💰 but constraints forge creativity + efficiency

Yes, just like that!

Anything which is out of band from above in terms of round size requires much more scrutiny from the partnership. As we all know, especially in the earliest stages, round size dictates valuation as the same amount of the company will be sold regardless (15-25% with anomalies of course). If a founder raises less 💰, the valuation is lower. If you’re a founder holding out for a larger round, you better be that top 1% of companies with the team, vision, and execution to boot as you’re likely to fall flat on your face without that.

Another important data point for founders is that FOMO is gone and actually works in the opposite direction as before. No partner wants to bring deals to the firm which have to move in 24-48 hours - it’s simply not happening any more, thankfully. Founders should also expect diligence processes to be much more extensive as time is now on the side of investors.

Ed Sim @edsim

Seed founders, be prepared, those Series A due diligence lists getting longer by the week. The more someone asks + more u have to educate them on market vs. why you, the lower your chances of getting something done. Find the true believers vs. folks doing market checks

Ultimately, founders should strive to build relationships with some select investors months before they need capital, kiss more 🐸 to get a round done, and right size the round size for where the business truly is. Finally, when raising capital, founders need to screen out the tire kickers who want to meet every company in a “space” and waste your time without ever writing a check. Trust me, there are lots of investors out there who are twiddling their thumbs wanting to write a check but too scared to invest at the moment. You don’t need to be market mapped, you need to raise cash so screen quickly and move to the next conversation.

As always, 🙏🏼 for reading and please share with your friends and colleagues.

Scaling Startups

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