{"id":1818,"date":"2015-03-24T13:47:49","date_gmt":"2015-03-24T21:47:49","guid":{"rendered":"http:\/\/eliasbizannes.com\/blog\/?p=1818"},"modified":"2015-03-30T08:57:19","modified_gmt":"2015-03-30T16:57:19","slug":"series-seed-and-series-a","status":"publish","type":"post","link":"https:\/\/eliasbizannes.com\/blog\/2015\/03\/series-seed-and-series-a\/","title":{"rendered":"Series Seed and Series A"},"content":{"rendered":"<p>Back in the &#8216;ol days, the first money that went into a technology startup was called \u00a0&#8220;Series A&#8221;. This not only marked the first money coming in but also set the valuation not to mention the terms of equity which impacts all other types of investment.<\/p>\n<p>However, those were the days where you had to raise $5-10m to get servers up, which you can now do for $10 with companies like Amazon, Rackspace, and Digital Ocean. \u00a0It&#8217;s a very different world now with the change in cost from marketing to hiring and\u00a0beyond.\u00a0During the last half decade, we have also seen an &#8220;accelerator&#8221; boom and an Angel investor boom where startups can get $20-100k in &#8220;seed&#8221; financing which accomplishes the same thing as the original Series A but without the traditional terms.<\/p>\n<blockquote class=\"twitter-tweet\" lang=\"en\"><p>Historically, no top-10 VCs were late-stage-only. Now, two full rounds (Accelerator &amp; Seed) before &#8220;A.&#8221; Most VCs are now later stage&#8230;<\/p>\n<p>\u2014 Naval Ravikant (@naval) <a href=\"https:\/\/twitter.com\/naval\/status\/529798938392420352\">November 5, 2014<\/a><\/p><\/blockquote>\n<p><script src=\"\/\/platform.twitter.com\/widgets.js\" async=\"\" charset=\"utf-8\"><\/script>Actually, it&#8217;s even crazier than that: entrepreneur friends of mine are raising &#8220;seed&#8221; rounds now of $1-3m which was what you would raise as Series A. What the hell is going on?<\/p>\n<p><strong>Series Seed<\/strong><\/p>\n<p>It&#8217;s been remarked Series Seed is the new Series A.\u00a0 Why bother calling something an A-round? Well, for one good reason: there&#8217;s a valuation.\u00a0 A distinguishing difference between raising seed money and Series A money is you price the equity you are selling verses deferring it.\u00a0 In Silicon Valley, &#8220;convertible notes&#8221; have become the standard now. You raise the funds from an accelerator or angel investor, but don\u2019t discuss the valuation (as you have no idea about revenues yet which is what you really need for a valuation).\u00a0 \u00a0The investment is presented as \u201cshort-term\u201d debt that converts into equity. \u00a0The option, which always happens, is that the investor will receive shares instead of the principal\u00a0based on the agreed terms. Another reason: If you\u2019re raising Series A from VC that means you\u2019ve graduated into a different type of startup.\u00a0 You\u2019re more of a growth business.\u00a0 No longer testing the market but building to scale.\u00a0 For a VC to participate as a Series A, it\u2019s a partnership decision that thinks you can be a billion dollar company and not just an idea.\u00a0 Not more worried about cash in the bank, but that you\u2019ll need enough people to grow quickly (or more commonly, that you can&#8217;t grow exponentially without the cash)<\/p>\n<blockquote class=\"twitter-tweet\" lang=\"en\"><p>\n&#8220;Yesterday&#8217;s venture funds are today&#8217;s growth equity funds.&#8221; &#8211; Brooks Zug, HarbourVest <a href=\"https:\/\/twitter.com\/hashtag\/partnerconnect?src=hash\">#partnerconnect<\/a> <a href=\"https:\/\/twitter.com\/hashtag\/PrivateEquity?src=hash\">#PrivateEquity<\/a><\/p>\n<p>\u2014 Sam Sutton (@samjsutton) <a href=\"https:\/\/twitter.com\/samjsutton\/status\/580722994026291200\">March 25, 2015<\/a>\n<\/p><\/blockquote>\n<p><script src=\"\/\/platform.twitter.com\/widgets.js\" async=\"\" charset=\"utf-8\"><\/script><\/p>\n<p><strong>Language matters<\/strong><br \/>\nI know of a lot of people who are forced to price their seed round. So, if the first money you receive is \u201cseed\u201d and the first priced money you receive is \u201cSeries A\u201d then this definition doesn\u2019t work.<\/p>\n<p>That&#8217;s why I would define Series A as having two of the three\u00a0following characteristics:<\/p>\n<ul>\n<li>Done by a multi-partner venture capital firm, not individuals. Your first real institutional money that also has the potential to <em>lead<\/em> your Series A round.\n<ul>\n<li>Important to distinguish is this is not an accelerator or a micro-VC (the latter could be $5-25m with one partner, which for all intents and purposes, is \u00a0a VC fund). These are new breeds of investors that aren&#8217;t the traditional, and have very different motivations\u00a0as well as likely not being able to participate in Series A rounds, let along lead it.<\/li>\n<\/ul>\n<\/li>\n<li>Done with a price. Your valuation is now defined.<\/li>\n<li>Done for the purposes of growth, not &#8220;startup&#8221;<\/li>\n<\/ul>\n<p>This isn\u2019t just semantics, language matters for millions (of dollars) of reasons.\u00a0 Entrepreneurs ask me on a daily basis how to fundraise and this same advice applies.\u00a0 Understanding these differences could save you from wasting 12 months of your life. \u00a0Raising\u00a0seed money is a whole different ball game to raising a Series A, with\u00a0entrepreneurs not\u00a0realising this until they have three months of cash left, a payroll, and a lot of users\/customers.<\/p>\n<p>My advice is be sure to know the importance of the bar between Series Seed and Series A:\u00a0 <a href=\"https:\/\/eliasbizannes.com\/blog\/2012\/01\/how-to-fundraise-in-the-next-six-months\/\">vision is 60% of how you raise money<\/a> with Series A (don\u2019t <a href=\"https:\/\/twitter.com\/EliasBiz\/status\/525592636426825728\">confuse vision for plans<\/a>.)\u00a0 Even if you raised $3m seed it doesn\u2019t mean you\u2019re Series A worthy.\u00a0 More cash in the bank doesn\u2019t mean you\u2019re a growth company and you\u2019ll run out of money before you know it, which is the main reason small businesses fail.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Back in the &#8216;ol days, the first money that went into a technology startup was called \u00a0&#8220;Series A&#8221;. This not only marked the first money coming in but also set the valuation not to mention the terms of equity which impacts all other types of investment. However, those were the days where you had to [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[],"class_list":["post-1818","post","type-post","status-publish","format-standard","hentry","category-silicon-valley","post-preview"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/posts\/1818","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/comments?post=1818"}],"version-history":[{"count":12,"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/posts\/1818\/revisions"}],"predecessor-version":[{"id":1855,"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/posts\/1818\/revisions\/1855"}],"wp:attachment":[{"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/media?parent=1818"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/categories?post=1818"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/eliasbizannes.com\/blog\/wp-json\/wp\/v2\/tags?post=1818"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}