10 ms·

Investor Funnels for Series As

103 points by runesoerensen 7y ago

iandanforth 7y ago
Does YC also provide any tools or standard processes around due diligence? I haven't been through enough rounds to know if there is any standardization between investors or if there is the possibility of encouraging such.
- JamesAdir 7y ago
  Would love to know about that too!
lmeyerov 7y ago
Not super surprising if you pay attention to the Soft Bank effect. Recent analyses of ~1,000-2,000 Series A say similar things: https://techcrunch.com/2019/04/25/a-quick-look-at-how-fast-series-a-and-seed-rounds-have-ballooned-in-recent-years-fueled-by-top-investors/ https://techcrunch.com/2019/04/25/a-quick-look-at-how-fast-s... Average Series A: * $5.3M raised pre-A * $33M average pre-money valuation * $10-15M average raises * 80% have revenue, with ~$1M revenue to ~talk, and ideally $2M So Series B is the new Series A, Series A is the new Seed II, and Seed.. oh whatever. Even more interesting when talking to investors who are unaware of the new reality. Fun times for fellow CEOs out there :)
rahimnathwani 7y ago
"On average, the companies that raised As had 30 coffee meetings with individual investors. 50% of these meetings led to pitches to individual partners. About 30% of partner pitches led to full partnership pitches. On average, 1 of every 5 partnership meetings produced a term sheet." Based on the above, it seems the average number of term sheets received by a company that successfully raised a Series A was 1. This surprises me because (i) it's often suggested you need more than one term sheet to have a decent negotiating position, and (ii) a YC-backed company should be better placed than most to get multiple, so if they're not getting them, then who is?
- luminati 7y ago
  The multiple term sheet negotiation strategy is generally a myth. [1] Most startups even the ones that are decently successful would be lucky to even get 1 given the enormous time sink (and seems to be corroborated by the data in the blog post - 30(+15+5) meetings for 1 term sheet!) Also remember you have atmost a week to accept it. (Unless of course you are piedpiper ;) [1]https://stevecheney.com/on-vc-startup-myths/ https://stevecheney.com/on-vc-startup-myths/
  - gumby 7y ago
    an excellent link!
- gumby 7y ago
  > This surprises me because (i) it's often suggested you need more than one term sheet to have a decent negotiating position, and (ii) a YC-backed company should be better placed than most to get multiple, so if they're not getting them, then who is? It's pretty hard to get more than one because every deal is on its own timeline (you didn't meet all the prospective investors on the same day, and each has its own internal timeline modulated by people being around and internal process). If you're really hot (and this is easier in later rounds where your A investor(s) can whip up interest) perhaps you'll get lucky, but most deals aren't, even really good ones. In fact being "hot" in your A round might be a negative predictor (I don't know) just as most child prodigies flame out. FWIW, most of my financing have been multi-TS deals and none of them have been round A. Also when someone issues a TS (see below) you can try to run around and use it to speed someone else up. That's hard, because the person who gave it to you will pressure you to sign immediately lest the deal explode. However you do have useful negotiating strengths even when you have only one TS. It's hard to issue one: every firm is unique but often you have to get all or most of your partners to agree; typically you only do one or two companies a year and the firm as a whole few, so nobody wants to write a TS and then not get the deal: they persuaded their partners that this is the one!. So you can push back on egregious terms, and propose alternatives to things you'd prefer were too different. If you push too much they can walk away (and then the partner will tell their partners "wow, we dodged a bullet; that CEO would have been an asshole to deal with". But don't let it get to that point. Another way that I've done for my last two projects was write the terms ourselves and issue our own term sheet. You're already implicitly doing this as you discuss what you're looking for before getting terms from an investor so why not simply propose a deal up front? Later stages are practically that way already as the earlier rounds will have constrained various things. This works if your team already have track records of investors making money.
deleted 7y ago
[deleted]
rundmc 7y ago
Has anyone created a commercially available CRM for this purpose?
- cadamson 7y ago
  What features would this CRM have that would differentiate it significantly from say, Pipedrive?
- contingencies 7y ago
  Someone started one in Australia recently, but wound up pivoting. I think % of companies in fundraising state at any time is too tiny to present an easily addressable target market.
  - nl 7y ago
    What was the Australian company?
    - contingencies 7y ago
      Just checked. Can't find it. It was a sort of 'try this beta' -> feedback -> meh experience with someone who reached out via YCSUS2018. They definitely pivoted.
- estsauver 7y ago
  Not sure how you would convince us it was a good sale in time for us to buy it. We'd probably also cancel right away. We'd honestly probably use airtable or a commercial crm for this. Sounds like a hard business.
contingencies 7y ago
This is sort of embarrassing for YC, so it's admirable they're sharing their surprise. Reads kind of like Breaking: people actually doing something know more about its practicalities than supposed subject matter experts. Points for honesty. I wonder if there's a VC model that could apply solutions to this category of issues from other domains (eg. traditional German trade schools) against the traditional founder/PE/VC structures to avoid such scenarios in future? Also, the entire tier of coffee meetings don't really happen in Asia, we tend to do either meals or in-house presentations in my experience.
- JumpCrisscross 7y ago
  > This is sort of embarrassing for YC Why?
  - rtpg 7y ago
    Well they're shocked by the 30 number, despite having had investments in like 624 billion companies so far. You think they would have at least heard about something to this effect from their relationships with YC companies? Especially given the whole "YC is about the network" How good is the network if it doesn't even give you the basic knowledge for a thing you are extremely likely to have to go through (Series A), right after YC itself?
    - JumpCrisscross 7y ago
      > they're shocked by the 30 number, despite having had investments in like 624 billion companies so far Handholding start-ups through their Series As isn't YC's core competence. If one could schedule two and a half meetings a day, on average, individual partner pitches could be had in 3 weeks. Give it 1 week for a partnership meeting and 1 week for a term sheet and you're talking zero to term sheet inside a month and a half. That's good. Unusually good. YC's network serves to speed up the rate at which those 30 meetings get scheduled. Not change the fundamental dynamics of company-investor fit. In any case, we have no baseline. It may be the case that 3% of YC coffee dates result in a term sheet while 0.3% of non-YC meetings do the same. > You think they would have at least heard about something to this effect from their relationships with YC companies? There is a lot of information buried in relationships that never surfaces because nobody is incentivized to ask. No CEO worth her salt will start waxing lyrical about all their failed coffee meetings when a term sheet on the table needs to be closed. And after the capital is raised, there are more pertinent questions for both sides.
pyb 7y ago
Despite all the rumours about a glut of capital, the stats indeed show that raising VC is not easy. But to put things in perspective, it is common, even for great people, to go through job searches that are tougher than this. (despite all the rumours about a tech talent shortage)
chrisseaton 7y ago
> On average, the companies that raised As had 30 coffee meetings with individual investors. What does 'coffee meeting' specifically mean?
- JumpCrisscross 7y ago
  > What does 'coffee meeting' specifically mean? Meeting at a coffee shop. Informal, short and stuffed in between the investor's scheduled work. Pitch deck may or may not come out. One implication of a coffee meeting is there is a personal layer to the relationship. (Someone made an introduction, or you know each other from prior work. Website submissions don't tend to land coffee meetings.) It also signals a recognition, on both sides, that early-stage investing tends to require personal connections between founders and their investors.
dustingetz 7y ago
Series A is defined as the first equity round (no matter the size)? So what is the funding mechanic of a "average sized" 5M seed round?
idlewords 7y ago
The idea of a conversion funnel for investment captures the real business model in play here. This is a marketplace in which the products being sold are business stories, and the audience is a very small group of wealthy consumers. Since the stories don't have to be tested against the real world, they can be perfectly tailored to the preferences of the buyers.

103 points by runesoerensen 7y ago

Does YC also provide any tools or standard processes around due diligence? I haven't been through enough rounds to know if there is any standardization between investors or if there is the possibility of encouraging such.

JamesAdir 7y ago
Would love to know about that too!

lmeyerov 7y ago

Not super surprising if you pay attention to the Soft Bank effect. Recent analyses of ~1,000-2,000 Series A say similar things: https://techcrunch.com/2019/04/25/a-quick-look-at-how-fast-series-a-and-seed-rounds-have-ballooned-in-recent-years-fueled-by-top-investors/ https://techcrunch.com/2019/04/25/a-quick-look-at-how-fast-s... Average Series A: * $5.3M raised pre-A * $33M average pre-money valuation * $10-15M average raises * 80% have revenue, with ~$1M revenue to ~talk, and ideally $2M So Series B is the new Series A, Series A is the new Seed II, and Seed.. oh whatever. Even more interesting when talking to investors who are unaware of the new reality. Fun times for fellow CEOs out there :)

rahimnathwani 7y ago

"On average, the companies that raised As had 30 coffee meetings with individual investors. 50% of these meetings led to pitches to individual partners. About 30% of partner pitches led to full partnership pitches. On average, 1 of every 5 partnership meetings produced a term sheet." Based on the above, it seems the average number of term sheets received by a company that successfully raised a Series A was 1. This surprises me because (i) it's often suggested you need more than one term sheet to have a decent negotiating position, and (ii) a YC-backed company should be better placed than most to get multiple, so if they're not getting them, then who is?

luminati 7y ago
The multiple term sheet negotiation strategy is generally a myth. [1] Most startups even the ones that are decently successful would be lucky to even get 1 given the enormous time sink (and seems to be corroborated by the data in the blog post - 30(+15+5) meetings for 1 term sheet!) Also remember you have atmost a week to accept it. (Unless of course you are piedpiper ;) [1]https://stevecheney.com/on-vc-startup-myths/ https://stevecheney.com/on-vc-startup-myths/
- gumby 7y ago
  an excellent link!
gumby 7y ago
> This surprises me because (i) it's often suggested you need more than one term sheet to have a decent negotiating position, and (ii) a YC-backed company should be better placed than most to get multiple, so if they're not getting them, then who is? It's pretty hard to get more than one because every deal is on its own timeline (you didn't meet all the prospective investors on the same day, and each has its own internal timeline modulated by people being around and internal process). If you're really hot (and this is easier in later rounds where your A investor(s) can whip up interest) perhaps you'll get lucky, but most deals aren't, even really good ones. In fact being "hot" in your A round might be a negative predictor (I don't know) just as most child prodigies flame out. FWIW, most of my financing have been multi-TS deals and none of them have been round A. Also when someone issues a TS (see below) you can try to run around and use it to speed someone else up. That's hard, because the person who gave it to you will pressure you to sign immediately lest the deal explode. However you do have useful negotiating strengths even when you have only one TS. It's hard to issue one: every firm is unique but often you have to get all or most of your partners to agree; typically you only do one or two companies a year and the firm as a whole few, so nobody wants to write a TS and then not get the deal: they persuaded their partners that this is the one!. So you can push back on egregious terms, and propose alternatives to things you'd prefer were too different. If you push too much they can walk away (and then the partner will tell their partners "wow, we dodged a bullet; that CEO would have been an asshole to deal with". But don't let it get to that point. Another way that I've done for my last two projects was write the terms ourselves and issue our own term sheet. You're already implicitly doing this as you discuss what you're looking for before getting terms from an investor so why not simply propose a deal up front? Later stages are practically that way already as the earlier rounds will have constrained various things. This works if your team already have track records of investors making money.

deleted 7y ago

[deleted]

rundmc 7y ago

Has anyone created a commercially available CRM for this purpose?

cadamson 7y ago
What features would this CRM have that would differentiate it significantly from say, Pipedrive?
contingencies 7y ago
Someone started one in Australia recently, but wound up pivoting. I think % of companies in fundraising state at any time is too tiny to present an easily addressable target market.
- nl 7y ago
  What was the Australian company?
  - contingencies 7y ago
    Just checked. Can't find it. It was a sort of 'try this beta' -> feedback -> meh experience with someone who reached out via YCSUS2018. They definitely pivoted.
estsauver 7y ago
Not sure how you would convince us it was a good sale in time for us to buy it. We'd probably also cancel right away. We'd honestly probably use airtable or a commercial crm for this. Sounds like a hard business.

contingencies 7y ago

This is sort of embarrassing for YC, so it's admirable they're sharing their surprise. Reads kind of like Breaking: people actually doing something know more about its practicalities than supposed subject matter experts. Points for honesty. I wonder if there's a VC model that could apply solutions to this category of issues from other domains (eg. traditional German trade schools) against the traditional founder/PE/VC structures to avoid such scenarios in future? Also, the entire tier of coffee meetings don't really happen in Asia, we tend to do either meals or in-house presentations in my experience.

JumpCrisscross 7y ago
> This is sort of embarrassing for YC Why?
- rtpg 7y ago
  Well they're shocked by the 30 number, despite having had investments in like 624 billion companies so far. You think they would have at least heard about something to this effect from their relationships with YC companies? Especially given the whole "YC is about the network" How good is the network if it doesn't even give you the basic knowledge for a thing you are extremely likely to have to go through (Series A), right after YC itself?
  - JumpCrisscross 7y ago
    > they're shocked by the 30 number, despite having had investments in like 624 billion companies so far Handholding start-ups through their Series As isn't YC's core competence. If one could schedule two and a half meetings a day, on average, individual partner pitches could be had in 3 weeks. Give it 1 week for a partnership meeting and 1 week for a term sheet and you're talking zero to term sheet inside a month and a half. That's good. Unusually good. YC's network serves to speed up the rate at which those 30 meetings get scheduled. Not change the fundamental dynamics of company-investor fit. In any case, we have no baseline. It may be the case that 3% of YC coffee dates result in a term sheet while 0.3% of non-YC meetings do the same. > You think they would have at least heard about something to this effect from their relationships with YC companies? There is a lot of information buried in relationships that never surfaces because nobody is incentivized to ask. No CEO worth her salt will start waxing lyrical about all their failed coffee meetings when a term sheet on the table needs to be closed. And after the capital is raised, there are more pertinent questions for both sides.

pyb 7y ago

Despite all the rumours about a glut of capital, the stats indeed show that raising VC is not easy. But to put things in perspective, it is common, even for great people, to go through job searches that are tougher than this. (despite all the rumours about a tech talent shortage)

chrisseaton 7y ago

> On average, the companies that raised As had 30 coffee meetings with individual investors. What does 'coffee meeting' specifically mean?

JumpCrisscross 7y ago
> What does 'coffee meeting' specifically mean? Meeting at a coffee shop. Informal, short and stuffed in between the investor's scheduled work. Pitch deck may or may not come out. One implication of a coffee meeting is there is a personal layer to the relationship. (Someone made an introduction, or you know each other from prior work. Website submissions don't tend to land coffee meetings.) It also signals a recognition, on both sides, that early-stage investing tends to require personal connections between founders and their investors.

dustingetz 7y ago

Series A is defined as the first equity round (no matter the size)? So what is the funding mechanic of a "average sized" 5M seed round?

idlewords 7y ago

The idea of a conversion funnel for investment captures the real business model in play here. This is a marketplace in which the products being sold are business stories, and the audience is a very small group of wealthy consumers. Since the stories don't have to be tested against the real world, they can be perfectly tailored to the preferences of the buyers.