Understand Seed Round(s) Dynamics in Silicon Valley

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Raising money for your startup is a hard thing to do, and a CEO knows that she will be periodically on the market to ask investors to trust her company vision. The fundraising process is part of the journey each founder faces; it’s the time when she learns how to create a big company starting from a small one. Time is the most pressing issue, but this journey is a marathon🚶🏾‍♂️, not a sprint 🏃🏼‍♀️that spawns tangible results over an average period of 10 years.

Good founders share a typical pattern. In the early years, they have to demonstrate that their company is on something that matches user’s needs. With almost no marketing budget, they have to use word of mouth techniques to enlarge the user base. When and if the company shows signs of 📈 growth, they start drawing people’s interest. In this context, the Seed phase can be considered just a first glimpse into the company’s ability to climb the market, but Series A is when things get serious, and growth needs structure.

The A round is commonly the first time the company’s equity is sold, and it’s very different than any previous financing phase. Term sheets and potential lead investors come into play, and venture capitalists might approach you with hundreds of million dollars in their pockets.

What actually differentiates a company that can raise a Series A round from one that can’t is its ability to prove that the product reached Product-Market fit. That translates into: “what the startup offers can be sold, and users keep using and paying for it.” Attaining that phase of development in the company life cycle is a significant milestone.

Most of the startups that can attract capital in the Seed phase with few months or even weeks of data will never get to close a Series A round because of a lack of Product-Market fit… (to be continued)

You can read the rest of this story on my newsletter https://thevalley.substack.com/p/understand-seed-rounds-dynamics-in

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We look for mission-driven founders, pre-product-market fit. We love to back distributed teams with HQ in Silicon Valley.

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Massimo Sgrelli

Massimo Sgrelli

Software engineer & venture capitalist @ LombardStreet Ventures. I love my family, coding, and writing.

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