Why Your Choice of Seed Investor Matters - Part I

Here at Entrada Ventures, we’ve been hearing a lot of chatter amongst startup investors about Series A rounds moving further and further down the road. The result of this is that Seed has become a phase and is no longer a distinct period in time – companies are raising more seed rounds and extensions over longer periods of time than ever before.

The bar has been raised for the coveted “institutional series A round” as the top VC firms prefer to put their money into businesses that can show more than just traction and potential. They want and expect to see more of a foundation in place. It’s become less about being a “scrappy startup” and more about data, market validation, financial modeling, communication, and growth. That’s a lot to think about, especially for first time founders who’ve never been through it before.

In comparing 2010 to 2017, there are a couple of key statistics that illustrate this big shift in funding practices….

From an essay by Peter Wagner at WingVC:

“Companies raising Series A in 2010 had raised an average of $1.4M beforehand. By 2017, this number had ballooned by an incredible 4.5x to $6.3M.”

Those figures are significant. The (cumulative seed) money raised by a company prior to the Series A round is now around $6.3M.

Peter also wrote:

“Series A financings are larger than ever before. In 2017, the average Series A was $12.1M, up 2.5x from $4.9M in 2010.”

And from Sarah Lacy CEO of Pando Daily:

“The numbers I’ve heard from most everyone is that only about 20 percent of companies that have gotten a seed round in the last year will be able to raise a Series A. To put that in perspective, imagine a game of musical chairs with a hundred kids and just twenty seats“

So not only does it take 4-5 times as much money to get to an A round, but the data also shows that only 1 out of 5 startups will be able to raise an A round. The good news is that half of those that do so will then move on to successfully raise a B round or have a favorable exit.

Gone are the days when you can show up on Sand Hill Road with a great deck and story and expect to get funded with only initial traction or revenue. Being able to build a strong company and tell that story is more critical than ever.

These changes, and this evolution, present an opportunity that was the very impetus for creating Entrada Ventures. As longtime angel investors and experienced operators, we recognized an institutional need in the entrepreneurial ecosystem. A need for something we were already doing with our portfolio companies as individual investors – using our experience and network to help fill the gaps in their companies and businesses. As strong and energetic as these young founders are, they usually don’t have the broad experience required to build the needed foundations while maximizing sustainable growth and minimizing mistakes.

By working hand-in-hand with founding teams, we helped build those competencies and supported strong founders on their path to becoming great CEOs. We’ve spent decades doing this as founders, executives, and mentors – and now we’ve joined together at Entrada Ventures to bring that experience to a broader base of companies and founders and to have a bigger impact producing greater outcomes as compared to what we were able to accomplish as individuals  And the best part of all this is that it’s what we love doing!

Please don’t hesitate to reach out with questions or comments at any time – we always love to hear from founders, investors, and the community at large.

Read Part 2 ofWhy Your Seed Investor Matters More Than Ever"