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🪄 The New Reality for Founders Moving from Seed to Series A

Investor expectations have changed dramatically for companies moving from Seed to Series A

AuthorAuthor

Amir Khan & Arjay Ruggles
May 30, 2024

Fundraising Tip of the Week

🪄 The New Reality for Founders Moving from Seed to Series A

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per Charles Hudson (Precursor): The Series A venture landscape has experienced a fundamental shift throughout 2023 and into 2024. Throughout the last decade, Seed-stage companies almost always aimed to raise Series A funding. With a high graduation rate from Seed to Series A being a key performance metric for seed-stage firms.

However, recently, Series A deal volume has significantly decreased, except for AI-related investments, leading to several major challenges for seed-stage startups and their founders.

💦 Deliciously Juicy Takeaways

🕰️ Past

Historically, Seed-stage firms and their limited partners took Series A funding for granted. This environment was caused by a combination of factors throughout the 2000s and 2010s, including:

  • An unprecedented explosion in venture capital availability driven by technical innovations and low interest rates

  • A lack of capital efficiency by both founders and investors because of the abundant availability of capital

  • Seed-stage firms often saw 50-75% of their investments graduate to Series A

🔎 Present

Between January 2022 and October 2023, Series A deal volume dropped by over 75%. Series A investors are not feeling pressured to make investments and are generally less enthusiastic. As a result, Seed-stage startups now face a challenging environment for raising Series A funding. This means founders raising today need to keep several important factors in mind:

  • Emphasize capital efficiency and execution with limited resources; investors have a lower risk tolerance for high burn rates and low revenue

  • Be prepared to receive and act on honest and accurate fundraising guidance from investors

  • Explore and be open to succeeding without additional capital if Series A funding is not attainable

🔮 Future

Moving forward, the challenging environment for Series A financing is likely to persist, with no return to the peak levels of 2020-2021, except in the AI sector. Founders need to accept this new reality and adjust their expectations accordingly. This means founders should consider the following for the continued success of their companies:

  • Investors will be cautious about dilution, aligning with founders on strategies to minimize it and maximize returns from initial investments

  • Investors will have a higher bar for founder quality, focusing on those who can achieve significant progress with limited capital.

  • There will be an increased caution in providing additional capital to companies that have not demonstrated significant progress

Investors You Should Know

✨ Featured Investor of the Week

Each week we highlight an early-stage investor that is actively writing checks to Pre-Series A companies. If you’d like to request a warm introduction, reply to this email or click the “Request Intro” button!

Note: We use a double opt-in system to ensure warm introductions; you will only receive a reply if an investor has accepted your request.

Prakash Goswami Managing Partner,
MARL Accelerator

📍Location: San Francisco, CA
📈 Stage: Pre-Seed
💵 Check Size: $50K

Bio: Prakash, a seasoned investor and entrepreneur with over two decades of experience in technology and finance, has held significant roles at PayPal and VISA. Currently, he is the Founding Partner at MARL 5G Accelerator in Silicon Valley. Additionally, he is the CEO of VestEdu, a platform dedicated to assisting first-generation college students by refinancing their student loans.

Fun Fact: Outside of work, Prakash enjoys camping at national parks with his kids and is a proud holder of the US National Park Pass.

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