Series A’s Are Gone and They’re Not Coming Back Soon
Skip the letter rounds entirely.
The venture market is bifurcating into risk on (seed) and risk off (growth). Series A is the mushy middle where no one wants to invest.
Seed (risk-on)
There’s maximal upside without the opportunity to ask too many hard questions or get stuck in data-driven analysis paralysis. The world/investment can be unbounded, uncluttered, and beautiful with clear risks and enormous payouts. True venture!
If you’re right, you’ll get the highest dollar for dollar returns earliest. And, for many, the dollars are immaterial with lots of soft benefits to just being active.
Growth (risk off)
You can invest real dollars with maximum confidence/certainty. Smart people can do “smart work” to feed a machine that’s already humming efficiently. At growth you’re adding fuel to an engine that obviously works, hopefully with some optionality that a couple other card flips can break your way and it can get huge. And there’s a measure of downside protection when investing in a demonstrably quality asset.
For many, this is where the real money gets invested and made. At a certain fund size, you have to be able to invest $25, $50, $100+ million for a position to matter.
Series A (the mushy middle)
Not enough data/confidence for downside protection, but not cheap enough to be a call option.
Investors are worried about getting fired for making mistakes that will look obvious in hindsight and Series A’s have just enough data to run that risk.
But there’s no upside in A’s when you’re too big (can’t deploy big $$$ at A)
Series A’s have data but not significance or evidence it can scale but it still takes more than FAFO money to flip that equation. It’s no man’s land.
What should founders do?
Raise more at pre/seed and get profitable/breakeven to control your destiny without scarifying optionality. Do “early” and “late” and avoid 18 month cycles of near-bankruptcy at the whims of downstream capital. Much better to raise extensions and climb that hill than to fall on the mercy of unenthusiastic Series A investors.
Skip the letter rounds entirely.
Founders should be prepared to take more dilution early on (larger seed rounds) and/but own more of their businesses at exit (fewer successive rounds of funding). That is, founders will be richer.