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Trying to figure out why he is focusing on the issues in signaling for the A round. As near as I can tell, it applies to every round. Bottom line: Build a co

Trying to figure out why he is focusing on the issues in signaling for the A round. As near as I can tell, it applies to every round. Bottom line: Build a company that your current investors want more of, and they will send the proper signals to new investors.

teuobk 15y ago
Indeed, signalling concerns apply to every round, but perhaps they are more important for the seed-to-A transition than for later rounds. It seems that most companies that raise a seed round (and survive) go on to raise a series A before an exit, but many companies that raise a series A can get to an exit without raising subsequent rounds. (Admittedly, I don't have solid numbers; this is just based on casual observation) Thus, future signalling worries could be less important during the A round if you aren't as concerned about ever having a B round.
- eladgil 15y ago
  Agreed - the transition is really seed to series A. By the time you hit series B or C, you have investors who own a large part of your company already (and in most cases won't do an "inside round" - or if they want to do it, the entrepreneur does not). So the dynamic post-series A becomes the VC helping you more in raising a B, but not competing for the series B. Since they are not competing to lead your B (they just pro rata), there is no signal (unless they do not want to pro rata, which is a very large negative signal).
mlinsey 15y ago
It does apply to later rounds, but the situation in the seed round is much different. In a seed round, you have the option of raising from either angels or VCs, including potentially many different VC's. This gives you some control of the situation and changes the signaling risks as compared to raising a series B. Even more importantly, as Elad mentioned a VC firm can do many, many seed investments per year without much cost to them, but is very limited in the number of Series A investments. The rate-limiting resource here is time more than money; a VC can only sit on so many boards. While this makes a Series A investor passing a worse signal than a seed investor passing, the former is in practice much less likely to happen because of how resource constraints work.

teuobk 15y ago

Indeed, signalling concerns apply to every round, but perhaps they are more important for the seed-to-A transition than for later rounds. It seems that most companies that raise a seed round (and survive) go on to raise a series A before an exit, but many companies that raise a series A can get to an exit without raising subsequent rounds. (Admittedly, I don't have solid numbers; this is just based on casual observation) Thus, future signalling worries could be less important during the A round if you aren't as concerned about ever having a B round.

eladgil 15y ago
Agreed - the transition is really seed to series A. By the time you hit series B or C, you have investors who own a large part of your company already (and in most cases won't do an "inside round" - or if they want to do it, the entrepreneur does not). So the dynamic post-series A becomes the VC helping you more in raising a B, but not competing for the series B. Since they are not competing to lead your B (they just pro rata), there is no signal (unless they do not want to pro rata, which is a very large negative signal).

mlinsey 15y ago

It does apply to later rounds, but the situation in the seed round is much different. In a seed round, you have the option of raising from either angels or VCs, including potentially many different VC's. This gives you some control of the situation and changes the signaling risks as compared to raising a series B. Even more importantly, as Elad mentioned a VC firm can do many, many seed investments per year without much cost to them, but is very limited in the number of Series A investments. The rate-limiting resource here is time more than money; a VC can only sit on so many boards. While this makes a Series A investor passing a worse signal than a seed investor passing, the former is in practice much less likely to happen because of how resource constraints work.