Hot in Enterprise IT/VC - What's 🔥 in Enterprise IT/VC #341
What's 🔥 in Enterprise IT/VC #341Fat cats 😺 don't hunt: How Dev + Infra cos can go from massive, preempted Series A rounds to a solid B in this environmentWhile the numbers show that VC investment is way 📉 in Q1 from historical highs, I can assure you that the seed market is quite robust, and there is a lot more activity at the Series A rounds, albeit with round sizes normalized to more of an $8-10M versus $15-20M range. It’s a different story in Series B/C land as Zach Weinberg points out. What’s most interesting IMO is what will happen to all of those companies that raised super early, preemptive Series A rounds at high prices? How will they get their B rounds done? Read 🧵 here. As much as founders and investors say, we’re different, the pressure eventually gets to founders to live up to lofty expectations. What’s 🔑 here is that there are still many stories to be written, and let me share with you how I see folks getting back to a solid Series B round to continue building their businesses. To illustrate the opportunity ahead, I created the “Mo Money, Mo Problems” picture overlayed on the Gartner hype cycle to show what happens many times during a preemptive Series A. For those founders who have learned the hard way that more 💰 does not mean they have more product market fit, they are heading towards the Trough of Disillusionment - which is brutal but also much needed. This is the point that founders must take a whiteboard and reorient themselves and their business to being a lean, mean, efficient seed stage company. All that’s needed is hands on keyboard to build and ship product, and the founders need to close the first 10 deals. Any hire beyond that must be justified. This is also where founders may not cut enough so sometimes they cut in 2 phases which frankly can be even more demoralizing for the team. Assuming that your startup did not burn too much, you will find many preemptive A round startups with 2-3+ years of runway. Getting lean is not about getting infinite runway - it’s about moving faster, creating a sense of urgency, and focusing on the basics. Here’s where the story can end positively from Series A to B. I know of a number of developer first and infrastructure companies raising highly competitive Series B rounds with a profile like this - wandered in desert for first couple years, went back to seed stage co and first principles, after turnaround first year selling booked ARR $500k-1M, Year 2 path to $3M+, and forecasting a 3-4x growth from there at $9-12M with demonstration of a repeatable sales motion. It’s possible, and I’m seeing it. The later stage VCs are writing term sheets to lead $30M+ rounds NOW at attractive valuations. So instead of getting stressed about expectations, focus on customers, take baby steps, get the first deal closed and then the next and you can write your own story of making it through the Trough of Disillusionment and getting to the Plateau of Productivity. And if you have the chance to raise a massive preemptive Series A (hint - any AI company), think long and hard about the above. IMO, the best founders operate best when backs against the wall. Fat cats 🐱 don’t hunt. As always, 🙏🏼 for reading and please share with your friends and colleagues. Scaling Startups
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