Does a Huge First Funding Round Negatively Impact Startup Outcomes?

CB Insights, June 10th, 2014

Y Combinator’s Sam Altman wrote that the track record software startups that raised a mega first financing is ‘pretty bad.’ But the data shows little to no relationship.

Last week, Y Combinator President Sam Altman tweeted:

Anecdotally, Altman’s point appears to have some basis. A day after Altman’s tweet, mobile payments startup Clinkle, which raised a seed VC funding last year that has since ballooned to $30M, announced the latest in a string of exec departures.

Naturally, we wanted to see if CB Insights data confirmed or disproved Altman’s view. Specifically we looked at U.S.-based VC-backed exits greater than $100 million in the Internet, mobile and software (non-Internet/mobile) sectors since 2007 and their initial funding amounts.

Based on the data, it’s actually all pretty random as software exits over $100 million have raised pretty varying amounts in terms of initial funding. However, given the power law nature of venture capital, it is worth noting that eight of the ten largest VC-backed software exits over the period all raised less than $10 million in their initial round of disclosed funding. The median raise by these companies was $4.9M. Of course, it’s also important to note that this analysis only looks at reasonably successful software exits at a high valuation threshold and does not take startup failure into account.

Note: Analysis included the outlier exits a la Facebook, Twitter, WhatsApp, etc but those points are not shown on the chart below.

All the data in this article and much, much more is available on our website at www.cbinsights.com. Come check us out!