We Live in a Post-series World
This post will take you into conventional wisdom around startup financing, try to provide some data for a reality check and conclude with some observation how founders can use that to their advantage.
The world of startup financing is built around stages of the business development and associated funding. The term “funding rounds” almost suggests a racetrack or game-board, where you pass “start” and automatically collect the money. Many founders we talk to present plans of “raising Series A” and as much as we share this goal in theory, we came to realize that reality very rarely sticks to those ideal stages, leading to a weird progression of funding rounds over the early life of a company.
As a check on that experience we looked at our portfolio and compiled funding data from the last 6 years, clearly showing that there is nothing like the classical Seed — Series A — Series B rhythm, but a series of funding rounds, that often defy any labels (ending up being called Seed, Seed Extension, Seed II, pre-Series A, Series A2, etc.). The chart below shows 45 startups from our total portfolio of over 100 companies that have raised external capital and are mature enough, so we can identify trends.
What the data shows
It starts with the oldest on the bottom, the more recent ones are at the top. On the X axis you’ll find the number of months relative to the first investment. Across those 45 companies a staggering 94 investment rounds (after the initial investment) have happened, with a median time of 13 months between the funding rounds.
The first bubble on the Y axis is our initial investment (neglecting any previous investments, for simplicity), every following bubble stands for ais follow-on financing round, either done by Speedinvest or (the vast majority) done by other funds or investors. The size of the bubble shows the total size of the round (money raised in that round).
How to read this chart: The 4th company from the bottom (in green), had 6 funding rounds over the course of over 4 years., with steadily increasing sums. That’s probably your ideal picture, with rounds happening every year, providing more money for growth (which happens). Looking at all the other companies, it’s clear: there are no two companies alike, every one of them has very individual fundraising patterns.
What that means for founders
It simply means that fundraising is much more part of the “daily” life than being something that you think about every 12 or 18 months. I would even say that a startup CEO has to manage 3 sales jobs exceptionally well:
- Selling the vision to employees
- Selling the product to clients / users
- Selling the business potential to investors
(and maybe even selling what you are doing to your partner, spouse or mum, and even to yourself)
All of these things never stop: hiring the right people is key, which drives sales which in turn drives growth and capital provides the basis for that. Often founders want to “do the fundraise and get back to business”, which we really understand, as it’s a painful and seemingly dreadful process. But it seems that fundraising is just business, as much as product, hiring, tech, etc.
Is this a European pattern?
This pattern might have some European bias, as the market is still tilted more towards investors than startups. That means smaller rounds, more capital efficiency, but also fewer crazy stories (like Color). I would love to see data for seed funds in the US or UK, where I believe that the reality is still far from the textbook type of funding stories that are traded at startup mixers.
Thanks a lot to Lisa Pallweber from the Speedinvest team for compiling all this data, without her endless hours and attention to detail, this post wouldn’t have been possible.