Jordan Wan, CFA 🇨🇦’s Post

What does it take to raise a Series A round in 2024? 💭 My friend Peter shared this gem of a graphic yesterday and it got me thinking. Firstly, here's what the data shows: 👉🏼 Y-axis: the percentage of companies from that seed quarter set that made it to a Series A 👉🏼X-axis: number of quarters since the cohort began 👉🏼 Seed-stage cohorts in 2020 made rapid progress, every single one of the quarters had at least 40% of the underlying start-ups get to Series A in 3 years or less. 👉🏼 Only 15% of companies that raised seed rounds in Q2 2022 made it to Series A in 2 years, the lowest percentage in the last 20 quarters. So what are investors looking for in companies raising Series A rounds? For me, it's the following: 1️⃣ - Capital efficient growth. Let's ditch the arbitrary 'you need £1m ARR to raise a Series A round' narrative and do the work to understand how start-ups are leveraging their levers for growth before allocating capital to these channels. 2️⃣ - A clear understanding of what product-market-fit (PMF) looks like and often these companies have started to experience repeat incidences of PMF signals. 3️⃣ - Clear line of sight to £10m ARR in the existing market with the existing product. The need for geographical or product expansion can distract from scaling the core business. The jump to Series A continues to widen and become harder for founders in 2024, but I still believe this will be one of the best cohorts of start-ups we've ever seen. #founders #startup #business #growth

The startup funding landscape is shifting dramatically. Seed rounds are up 56% since 2020. Series D rounds are down 40%. This widening gap is creating both challenges and opportunities. For early-stage founders: • Focus on traction over valuation • Be prepared for a longer fundraising journey • Consider alternative funding sources For later-stage companies: • Emphasize profitability and sustainable growth • Explore strategic partnerships • Be open to down rounds if necessary The key? Adaptability. How are you navigating this new funding reality? #StartupFunding #VentureCapital

Most founders 𝗱𝗼𝗻'𝘁 𝘀𝗲𝗲 what's actually happening when their fundraises hit a brick wall... 👇 Between the 𝙛𝙞𝙧𝙨𝙩 𝙛𝙪𝙣𝙙𝙧𝙖𝙞𝙨𝙚 and the 𝙨𝙚𝙘𝙤𝙣𝙙 𝙛𝙪𝙣𝙙𝙧𝙖𝙞𝙨𝙚, there tends to be a major hurdle that I call the The Great Disconnect. For the first fundraise, founders often raise capital from family or friends or angel investors coming from their same industry. So, startup founders tend to talk about their product and company in customer-language. It works. They raise capital. The founder thinks, "I know how to fundraise now!" But then... the startup has to raise a second round of capital. So they use the same language in their pitch for the first fundraise. These second round investors seem to be confused - they tend to ask questions such as, "Can you explain the problem again?" "Can you explain the market more?" Or, "Let me just try to re-state what you are doing so that I understand..." The fundraise hardly gets any traction. The founders feel like something is broken... 👉 The startup fails to realize that the investor audience in the first round was made up of family and industry subject matter experts. But in the second round, the investors tend to be generalist investors, not as familiar with the problem space as the investors in the second round. 𝗧𝗵𝗲 𝗶𝗻𝘃𝗲𝘀𝘁𝗼𝗿 𝗮𝘂𝗱𝗶𝗲𝗻𝗰𝗲 𝗵𝗮𝘀 𝗰𝗵𝗮𝗻𝗴𝗲𝗱, 𝗯𝘂𝘁 𝘁𝗵𝗲 𝗳𝗼𝘂𝗻𝗱𝗲𝗿𝘀 𝗱𝗼𝗻'𝘁 𝗿𝗲𝗮𝗹𝗶𝘇𝗲 𝗶𝘁. 👈 ✅ To solve the Great Disconnect, the founder needs to change how they communicate and pitch the opportunity for the second round investors. ✅ 👉 It's a higher level pitch 👉 It's zero industry jargon 👉 It's a "let me show you how deep this problem is" approach. Most of the time, founders tend to blame the lack of fundraise traction on investors. But often it's not due to investors' lack of understanding. It's due to founders having a fundraise messaging problem. ----------------------------- I write a weekly newsletter to give founders insider information on what investors are 𝘳𝘦𝘢𝘭𝘭𝘺 thinking. Check it out below 👇 https://lnkd.in/eMiaUx7R

Discover why a surge in investor activity is sparking a trend towards supersized seed rounds, with many now exceeding $5 million. Learn how this shapes startup futures.

The result of your GTM

Five BIG differences I'm seeing in founders in 2024 vs 2023 👇🏼 1️⃣ More research hours were spent understanding what customers would find truly valuable and a deeper understanding of a sector-market cycle. 2️⃣ A focus on scalable economics (specifically, sales efficiency) and a clear line of sight to capture £10m ARR within an immediately accessible market. 3️⃣ Lean teams largely comprised of former colleagues or connections the founder has prior experience with. 4️⃣ Raising capital on lower valuations to avoid unreachable growth expectations and in favour of terms that give founders more control. 5️⃣ Clear and structured communication pathways with customers, sometimes through communities the founders have cultivated for years. The 2024 startup cohort is going to be strong 💪🏼 #founders #startup #vc #business

I don't think that founders have fully caught on to the idea that "team and dream" is no longer sufficient to raise a Pre-Seed round. Here's what's changed in the funding landscape. Pre-pandemic, companies needed to be making at least $80k/mo ($1M ARR) in order to raise a Series A. Working backwards, investors were comfortable with the idea that in ~16 months, a strong startup should be able to 4X revenue, so $20k in MRR was considered pretty sufficient to raise a Seed round. Working backwards from THAT, early stage investors were widely comfortable with the idea that a startup could go from zero to $20k in MRR in 16 months. As a result, a great team with a killer idea in a huge market was frequently sufficient to raise $400k - $1M in a Pre-Seed round. Post-pandemic, that Series A goalpost is now squarely $170k/mo ($2M ARR) and Series A investors are much less likely to give leniency to founders who don't meet that threshold. There's simply too many startups at that revenue to invest in. As a result, Seed-stage investors have upped their standards to $40k - $50k/mo in revenue, again looking for a 4X jump in revenue before raising that next needed round. And now, those Pre-Seed investors are recognizing it's REALLY hard for most companies to 1) build a product and 2) figure out a viable business model and 3) go from zero to $50k MRR, all in 16 short months. So, by and large, they're expecting to see actual traction. If you're doing $10k - $15k/mo in MRR, that's a 3X-to-5X leap in revenue. Totally doable when you have a product IN MARKET with basic EXISTING TRACTION. It's scaling, not figuring out the basics. Investors don't care what you need. They don't care if you can't get to market without capital. There are far too many founders who can, thanks to no-code platforms, AI tools and larger and larger networks created through online communities. As much as I hate it, if you need pre-traction capital, Friends & Family is your best bet. Figure out how to get to market with $50k. Don't quit your day job prior to completing the Discovery phase. Shit, don't quit your day job before you have an MVP in market. Welcome to 2024. Investors aren't coming to help you fulfill your startup dreams. You gotta do that on your own. * As always, I'm leaving the Bay Area out of this. That place is weird and very few rules seem to apply. But whether you're in Denver or Seattle, LA or NYC, this post applies to you.

More on my thoughts from earlier today from Eric Marcoullier - “Team and Dream” is no longer sufficient to get you pre-seed funding in most cases these days. Ask yourself how you can generate real proof points - revenue traction always wins out, but think about other aspects you can bring to life without raising a round: customer feedback is OK, front ends delivering Wizard of Oz-structure functioning solutions in the back end with signed up users coming to your tool consistently are another great mid-level step on the way to revenue. Be creative in your market discovery and initial traction instead of wasting cycles building investment decks and projections that are never right. In most cases, venture just doesn’t work like that anymore…

Founders: use this cheatsheet to understand the current market for startup valuations at Seed, Series A, and Series B. Data is from US startups who raised a primary round from Jan-Sept 2024. Usually these sorts of charts just give a median and track it over time - but in this case, I thought it would be useful to split the data into the full range. From the 10th percentile at the low end to the 90th percentile at the high end. 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁𝗶𝗻𝗴 𝗙𝗶𝗻𝗱𝗶𝗻𝗴𝘀 • Energy consistently has the highest or close to highest upper range across the sectors we studied. Maybe in part due to the high capital needs (which pushes valuations up if dilution is to remain manageable).    • The gap between the lower end of the range (say 10th to 25th percentile) is usually much smaller than the gap between the 75th and the 90th. There really are some wild outlier valuations across most industries.    • Industries are fairly close together at the median valuation at Seed, but the differences become much more stark as you move across the alphabet stages.    • Round sizes have been rising at Seed and Series A across the past year (and a little at B as well, though less so). This has in turn pushed those median vals higher.    • Companies that raise at the 90th percentile have no guarantee of staying on that upper pathway through the next round. Many startups will bounce around in the ranges from round to round.    • There are regional variations - the ranges for Silicon Valley startups will typically be higher at each benchmark than for startups in the Midwest or South. Not right answers in these charts - only a snapshot of real deals being completed. Share with a fundraising founder, and here's to a strong deal season to close 2024! #startups #founders #valuations #fundraising #venturecapital Farm-to-table data, prepared fresh every Thursday morning in our data newsletter. Subscribe at the link in graphic.

The number of seed deals declined 56% between Q1 2022 and Q4 2023 (JP Morgan). For most startups, securing investment is mission-impossible without showing some traction. Potential investors, partners, and clients want to see signs of early traction before confidently teaming up with you. For startups or projects that are pre-revenue, the situation may seem daunting. But it is not “a chicken and an egg problem.” I collaborated with VC Jonathan Crowder to come up with 6 Traction KPIs proven to show them that you are on the right track in pre-revenue go-to-market stages:  - Size of engaged audience - Size of your waitlist  - Number of paid preorders  - Number of active beta testers  - Number of free users & their retention/churn - Number of prospective customers and anticipated deal sizes from letters of intent Anything is better than nothing. If investors can see how these traction KPIs will lead to revenue, they’ll be more excited to back your mission. So show them what you got and fuel them with confidence that your go-to-market journey will triumph. Which pre-revenue metrics do you use to demonstrate traction? Let’s discuss this in the comments! ✌️