Bursts of Color - Series A: The Ivy League
For a startup, raising Series A or B in this environment is like a high school student applying to the Ivy League.
There are far more applicants than available slots in both cases, so the odds are tough. For instance, only 15% of the most recent startup cohort graduated from Seed to Series A within two years. And just like parents who applied to college a generation ago, our Series A data points from 2020 are no longer relevant.
As for students, it's key for founders to understand what slots they are competing for. From my vantage, most Series A/B companies fit into one of the following categories:
Recruited Athletes: reserved for the hottest sectors of the moment. Right now that includes things like Foundation Models, Defense Tech and Cybersecurity. These companies get measured on different metrics than everyone else (e.g., your 40 yard dash, not your SAT), so it's unhelpful for other students to compare themselves to the athletes.
A+ Students: the good news is that this is still the biggest bucket. The bad news is that the benchmarks have become incredibly high. You want to surprise someone with great metrics? That may require growth from $0 to $5M revenue in one year. Or $7M to $34M in a recent example I know. A 1400 SAT is not what it used to be.
Legacies: if you were one of the first 10 OpenAI employees or your last name is Musk, then yes you can go to a different line.
The Best Storytellers: there are always a few spots available for the coal-miner's kid who volunteers in the hospital, or Adam Neumann raising VC for shared office space. But these are a special few.
So what should a founder do in this environment?
First, figure out if you can be competitive in one of these buckets... and if yes, do everything you can to maximize your edge in that area.
What if we’re not competitive in one of these buckets?
That's fine, of course. But it does mean that your odds of getting into the Ivy League are low, so it's best to plan accordingly. And earlier planning is usually better. Some logical alternatives include:
Expand Your College Search: Seek out other, unusual sources of capital beyond the known Series A/B VCs. Many of the companies we see raising capital lately have found “strategic” investors (meaning they may care about your business for different reasons than the financial return) that may be corporations, family offices or international investors.
Junior College: Raise an extension on your last round if the market and insiders are willing. As with junior college for students, this can buy time (though not indefinite time) to make other plans.
Join The Real World Sooner Than Planned: Get profitable on current funds and build from there.
In Conclusion
By all means: any kid who wants to apply to the Ivies should give it their best shot. I wish every one of them well.
In parallel, I think it’s often wise to plan for the alternatives.
Marketing Candidate
Jonathan Caplan is a friend of Rob’s and marketing leader from companies like Intel and IBM. Jonathan has built a high impact marketing function by establishing marketing infrastructure and positioning strategies from the ground up for new product launches and program introductions. Based in Portland but open to other locations. jonathanbcaplan[at]gmail.com