
YC’s new guide to raising a Series A - akharris
https://blog.ycombinator.com/ycs-series-a-guide/
======
akharris
We started YC’s Series A Program two years ago to fix a problem faced by every
startup raising an A: VCs understand how Series As work and founders do not.
This asymmetry of information puts founders at a significant disadvantage.
Much as YC had done for seed stage financings - we decided to resolve that
asymmetry in order to help founders.

We learned some interesting things, for instance:

\- Founders on average have to meet with 30 investors to produce a single term
sheet. ([https://www.ycombinator.com/resources/the-series-a-
fundraisi...](https://www.ycombinator.com/resources/the-series-a-fundraising-
process))

\- Founders who take pre-emptive offers take 1.4% more dilution for less money
than those who run processes. ([https://www.ycombinator.com/resources/pre-
emptive-offers](https://www.ycombinator.com/resources/pre-emptive-offers))

\- Benchmarks are almost meaningless. We’ve seen As for SaaS companies with
200k in ARR and with $9m in ARR.
([https://www.ycombinator.com/resources/benchmarks](https://www.ycombinator.com/resources/benchmarks))

While we can't work directly with every company in the world trying to raise
an A, we think that publicly distributing our learnings would help all
founders. Our hope is that the Guide will remove information asymmetry from
the Series A process, and help level the playing field between founders and
VCs.

~~~
jjeaff
I don't know how data driven it was, but an accelerator I was in a few years
ago said that they found that their seed stage startups with early revenue
actually had a harder time raising a series A in many cases. Presumably due to
the fact that VCs would try to extrapolate future market from that revenue or
would wonder why the revenue wasn't higher already.

But if you were "pre-revenue" then they just accepted that you were pre-
revenue by choice and everyone's imagination was the limit for future
revenues.

~~~
etaioinshrdlu
This concept was literally parodied in Silicon Valley:
[https://www.youtube.com/watch?v=BzAdXyPYKQo](https://www.youtube.com/watch?v=BzAdXyPYKQo)

Quite funny too.

~~~
jjeaff
Yes, I was quite amused when that came out because we had been told that a few
years before that show even aired.

~~~
hugs
As a founder of an SF tech company that now makes tens of millions of dollars
a year, our revenue was never enough (or made fast enough) for the investors
we talked to when we were raising our early rounds. Sometimes, if we made $X
in 6 months, the VC's "no" was "We would have liked to see you make that in 3
months". It's why I have a tough time watching Silicon Valley -- it's _too_
accurate and painful to watch.

~~~
cboornaz17
I find it mind blowing that making robots to tap screens is such a lucrative
business.

Who's buying all of these up?

~~~
hugs
The robot business isn't bad... Story for another day. But it's my first
startup, the test automation SaaS business that's currently making the big $$.
Literally any company with a web site or mobile app needs to test their stuff.
It's a huge market.

------
jdoliner
Pachyderm had the good fortune to go through YC's first Series A program, I'm
pretty sure we couldn't have raised without them, we'd tried and failed
before. As with everything YC does, over time they've gathered more data,
refined the methodology, and I think they've probably affected some change on
VC's side as well as they're giving companies a better way to communicate with
each other while they're raising, and sort of collectively bargain. This
should be your go to guide for raising an A.

~~~
akharris
And we had the good fortune to work with the two of you. I learned, and
continue to learn, quite a lot watching you build Pachyderm!

------
brenden2
Thanks for the guide, although as a founder I'd say I have mostly given up on
the idea of raising money from VCs. VCs care too much about vanity, and I
don't fit the mold most VCs are looking for, thus they'd never invest in
someone like me despite my track record of success.

These days I'm bootstrapping a couple small businesses (don't put all your
eggs in one basket) and things are going well. It's tough as a solo founder,
but I have a good set of friends who are cheering me on from the sidelines,
and I make progress every day. I'm pretty skilled at most things, and for the
areas I'm weak there's always Craigslist or Upwork.

I will say that the big advantage of not taking outside investment is that I
don't feel any pressure to meet other people's expectations, I really enjoy
the work I'm doing, and I get to reap 100% of the rewards.

Just to be clear, I intend to apply to YC again, and if a great funding
opportunity came along I wouldn't say no, but I've also decided not to
actively pursue VC funding anymore. For me, right now, the most sensible thing
is to stay focused on building product and acquiring customers.

~~~
tptacek
If you're not doing a business that can plausibly generate billions of dollars
in the lifespan of a VC investment, you're probably not a good fit, because
most of the returns in VC portfolios come from success on that scale. That's
not vanity; it's just mathematics.

I'm with you, in that I'd much rather finance a business on revenue than on
speculative investments. But I think too many people blame VC for something
that's kind of intrinsic to their business model.

If you want to blame VCs for something, blame them for never giving a straight
"no" answer when they know that's what their answer is, thus necessitating the
dance described by the first half of this guide. _That 's_ not intrinsic to
the model; that's just them being dicks.

~~~
brenden2
FWIW, I'm only interested in building businesses that could potentially be
very large.

VCs do indeed place massive emphasis on vanity because they live and die by
reputation and perception. Twitter sentiment matters a lot when you're a VC.
Additionally, markets care a lot about perception of success rather than
'real' success (though you could argue they're one in the same). There are
plenty of examples of companies who raise massive amounts of investor capital
strictly based on hype, without necessarily having the economics to support
it. The early investors can win bigly merely by cashing out before the
laggards jump on the bandwagon.

------
capocannoniere
This is exceptionally well-written. And it looks like YC's design has stepped
up quite a notch too :)

Quick question: how to reconcile these two almost-conflicting views:

1) Raising money is the CEO’s job. If you are the CEO, you should plan for it
to be your sole, full-time focus.[...] Do what you can to avoid distracting
others with fundraising. Co-founders or other executives are typically only
brought in to answer specific questions (e.g. CTOs handle technical
diligence), and usually only at the full partnership stage.

Even in the rare case of co-CEOs, it’s best to have a single point of contact.
Investors want to see a clear decision-making process, which generally
requires a final decision-maker.
([https://www.ycombinator.com/resources/prepare-your-
company](https://www.ycombinator.com/resources/prepare-your-company))

2) Signing on with a Series A lead is the beginning of a 10 year relationship.
If all goes well, that’s how long your board member will have a say in your
company. As such, optimize for your board member, not vanity metrics, like
valuation. ([https://www.ycombinator.com/resources/how-to-choose-an-
inves...](https://www.ycombinator.com/resources/how-to-choose-an-investor))

Given point 2), shouldn't non-CEO founders also be involved in at least some
meetings with investors to weigh in on who they want to have as board members?

~~~
ska
I don't think these are in contention. It's the CEOs job to focus on
fundraising, it's other founders (and key hires) job to focus on doing the
thing they are raising money for.

But that doesn't mean it's the CEOs decision alone when it comes to choosing -
there is a lot of legwork to be done before you get there though. I'd
absolutely expect other founders to be in later meetings, and a sounding board
before then.

------
sytse
Amazing guide. Everything I read makes sense. Also cool to see YC taking bio-
tech so seriously [https://www.ycombinator.com/resources/for-hardtech-
biotech-a...](https://www.ycombinator.com/resources/for-hardtech-biotech-and-
international-founders)

~~~
akharris
Thanks! That means a lot.

And yeah, biotech is an important focus for us. Jared and Uri have been
incredible at building that program and our knowledge.

------
mihaaly
I have a feeling that good portion of startups put emphasis on satisfying
investors rather than customers, developing for the investors. One might say
it is the same (good investor knows and follows what the paying customers
want), but I think it is not. Customers of a product has very different
mindset than an investor and the latter may not 'know' (more like guess)
better than any one of us involved or affected. Investors do what they have to
do, trying to find the future big deal (and money cow) or at least protecting
their money but when startups adjust approaches for the admiration of
investors then I get skeptical. And worry for the investor too a little bit if
the path chosen will lead to customer appreciation as well... Don't mind me, I
just ran into several startup entrepreneurs recently who emit the atmosphere
of subsistence level actors with sole focus on the money source being the
closest. They do not emit an inventor vibe which is ironic as what they speak
of and sell is always very inventive or revolutionary, the best so far of
course. I asked one of them how he imagines the product in 5 year time for
which the answer was: 'sold to someone'. Seems like their heart and proud is
somewhere else. I may have met the wrong crowd.

------
cheriot
Has YC come out with any guides on how companies can make employee equity more
reasonable?

Things like allowing 10 years to exercise options, not allowing founders to
own preferred shares, informing employees if any following rounds include
liquidation preferences or guaranteed returns.

Right now I have a hard time trusting employee equity and I'd love to see
someone create a checklist companies can either say they follow or specify
where they don't.

~~~
akharris
A few of us have written on this in the past, though we haven't written a
specific guide for it.

------
jiveturkey
Is it common for Series A term sheets to state valuation in post-money? I know
the YC SAFE docs are [now] post-money. I wonder if that is driving the post-
money valuation term in the Series A template, or is it just that this is
typical? I've no idea what really happens but from the little I've picked up
in casual browsing it seems that you typically raise on pre-money valuation

~~~
gnicholas
We were duped by a corporate accelerator on this. We negotiated the valuation
of the company, and then when the docs came through, they portrayed that
valuation as being inclusive of the money to be invested.

At the time, I investigated this and learned that most valuations are done on
pre-money terms. It was just one of several scuzzy things that said corporate
VC would do.

------
jiveturkey
[https://www.ycombinator.com/resources/yc-standard-series-
a-t...](https://www.ycombinator.com/resources/yc-standard-series-a-term-sheet)
has a wrong link to the term sheet. It links to
[https://www.ycombinator.com/docs/Standard_Series_A_TS.docx](https://www.ycombinator.com/docs/Standard_Series_A_TS.docx)
which is a 404. The actual link is
[https://d1l6icgp8w0hse.cloudfront.net/assets/ycdc/Standard_S...](https://d1l6icgp8w0hse.cloudfront.net/assets/ycdc/Standard_Series_A_TS-
aea3e3fec698645a5180351b59bddc11b21862954a7bfdc63c4f80cb7c7c1e21.docx)

------
kevintxwu
It's so helpful to see this all written down - nothing quite like this out
there at all

------
mhb_eng
Great guide! Overall, agree with the thoughts on leverage and running an
efficient process. However, speaking from experience and having spent time as
a principal and associate, I would disagree with the advice that only pitching
partners is worthwhile. Depending on the space(my experience is solely in hard
tech), associates and principals generally make up the technical core of the
team, so getting them excited is a key step in making overall progress. A good
rule of thumb is to check LinkedIn. If the person has been there more than a
year, assume even lower level folks have an ability to make go/no-go
decisions.

~~~
akharris
That's an interesting point. You're right that, for hard tech deals, the non-
partners are often the relied upon experts.

To refine this point a bit - I don't think it's a bad idea to spend time with
non-partners, but they're not the ones that you want to pitch in the standard
sense. If you're trying to win a technical subject matter expert, your
approach and dialogue are tailored for that specific conversation.

------
schizoidboy
This is shockingly comprehensive and valuable; thank you. One minor suggestion
is to generate a single-page or PDF version. I manually created one although
of course this will go stale:

[https://drive.google.com/file/d/1jKepii1hL9e-gkAsz906nRtgssz...](https://drive.google.com/file/d/1jKepii1hL9e-gkAsz906nRtgsszRXjWN/view?usp=sharing)

~~~
akharris
Thank you!

A well laid out, single page version is high on our list. We simply didn't
have a chance to put it together yet, but are working on it. Stay tuned.

------
so_tired
Off topic: are $1M/$2M seed rounds realistic during YC demo day?

Even with some traction/users/conversion/revenue, and a grand long-term
vision, a suggested 15%-25% dilution [1] gives $4-10M valuation. Outside SV,
this is already Series A valuation. Any thoughts ?

[1] [https://blog.ycombinator.com/how-to-raise-a-seed-
round/](https://blog.ycombinator.com/how-to-raise-a-seed-round/)

~~~
DamnYuppie
Yes getting $1M to $2M raised because of demo day is reasonable. Yet closing
$2M on demo day without subsequent follow up meetings would be very
impressive!

~~~
blackrock
$1 million doesn’t get you very far these days.

That only pays for the salaries of 5 engineers. And what about rent? That
takes one salary itself. Which only leaves you with enough money for 4
engineers.

~~~
taytus
Give me 5 engineers and I will change the world.

~~~
blackrock
Well, if you can encourage them to work 70 hours a week, and you work for
free, then you’d get the equivalent of 10 engineers.

~~~
taytus
I will never encourage anyone to work 70 hours a week.

------
rexreed
How much of this is relevant for companies based in locations that are NOT
particularly venture capital heavy? Is this heavily slanted towards SV / SF
investors that are well ahead of the pack?

~~~
nl
I've raised money (not series A though) and I've got friends who have raised
series A outside the Valley.

Expect the process to be slower but all the advice is very relevant.

Also I suspect most people raising series A outside of China/HK today probably
at least consider a trip to SV when raising.

------
sandGorgon
This is brilliant. Thanks for doing this - it's something we will most
certainly be studying.

One thing that would be great to have in much more detail is how to do a
dataroom. There's a lot of investor hate around docsend,etc. Not sure what's
the socially acceptable way to do data rooms now - time bound, downloadable?,
Etc

~~~
akharris
Will add it to the list for the future. Unfortunately, there's a required
balance here between what makes sense for you and what makes sense for the
investor.

------
Qworg
Having just gone through this process, having a clear doc to point to is
invaluable. Thank you YC!

------
jariel
Bravo. This is essentially the most important stuff YC produces.

------
streetcat1
I always assumed that raising money is akin to dating.

I.e. if you have the right product with tractions from dozen of customers,
then the VC will find you?

Am I missing something?

~~~
akharris
As with dating, you don't get what you want if you sit around at home hoping
someone will find you.

------
arikr
Dang, mind changing the title here? "Otherwise please use the original title,
unless it is misleading or linkbait; don't editorialize."

Feels important for YC's submissions to follow the guidelines, otherwise it
tells everyone else - hey why bother following them yourself when the people
associated with the site don't follow them.

~~~
dang
When the submitter is clearly the author of an article or project, we give
some leeway about how they present their work to HN. You can see that most
clearly at
[https://news.ycombinator.com/show](https://news.ycombinator.com/show). The
exception, of course, would be if the title is misleading or baity, but "YC's
new guide to Raising a Series A" isn't.

The way to understand the site guidelines is in a 'spirit of the law' way, not
a 'letter of the law' way. If you watch closely you'll notice plenty of little
deviations, but they should be in keeping with the underlying principles. In
the case of the title guideline, the principles are (1) titles should be
accurate and neutral (i.e. not misleading or linkbait) and (2) the content
should get to speak for itself, and not be replaced by something that the
submitter imposes over the author. When the submitter _is_ the author, #2
shifts a bit.

I appreciate your point, though, about needing a higher degree of visible
consistency when the content is from YC. I'm happy to change the submission
title, but I suggested to Aaron to change the article title instead and I
think that's what they are going to do. Will check back in a bit. Thanks!
Edit: looks like that's done now.

~~~
arikr
Thanks dang, that makes sense! Thanks for including the thought behind it as
well.

