
The Struggle for Series A - wylonis
https://medium.com/@cwylonis/the-struggle-for-series-a-4d8395dc803a
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aaronwhite
Speaking on the VC side, some the crunch premise is flawed. The crunch is due
to a huge explosion of early stage companies (easier than ever to get seeded,
less capital than ever needed to get started) w/o a corresponding explosion of
A-level capital.

There is no formula for unicorns, I'd dismiss that outright, and even if we
found one, every founder would bend their story to adapt superficially, and
the forumla would prove useless.

My #1 theory on why people w/ a somewhat logical strategy/thesis fail to
raise? Failure to tell a compelling, coherent story about their opportunity,
and failure to come across as a compelling "force of nature" founding team.

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wylonis
i partially agree with your point on an explosion in early stage companies.
however, i think part of this explosion in seed stage companies is because
companies are now raising 2-3 seed rounds and jumping straight to A rounds
which in effect is the old "B round." i think part of this behaviour is driven
by investors dis-interest in A rounds so entrepreneurs try to be "seed stage"
as long as possible until then can raise 10 million dollar A rounds which is
really a b round.

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calbear81
The two sets of questions are asking fundamentally different things. The "bad"
questions are all about the market your company has entered, the potential
size and value of that market and who the competitors are that are in the
space. This is important because your "good" questions are all about whether
your team can execute and what growth/adoption rate but with an unknown market
size. You can certainly grow to be a big fish but if it's a small pond you're
playing in that may be less compelling to that investor. On the other hand, an
investor may want to make a bet on a smaller fish in a big pond knowing that
there's a lot of room to grow even if it means there's higher risk. Both sets
of questions are important in my opinion. The 1st set establishes whether or
not I even want to invest in this space and the 2nd is if your company is the
one I want to place my bets on.

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cauterized
Big fish in small ponds frequently (to stretch an analogy painfully thin)
start to take over nearby larger ponds once they've dominated their niche.

A few examples that come to mind include:

Amazon (books -> retail in general -> streaming media, hardware, IAAS...)
Google (search -> ads -> mail, calendars, etc. -> hardware and operating
systems...) Facebook (social networking at Harvard -> social networking in the
Ivies -> social networking at colleges -> social networking everywhere ->
messaging, ads...) Zappos (shoes -> handbags -> clothing, jewelry,
sunglasses...)

And those first three grew not just by taking over existing markets, but by
becoming popular enough that they enlarged their own markets. Before Facebook
became big, social media just wasn't something the vast vast majority of
people over fifty had any involvement in. Now everyone I know (including two
over-90-year-old great-grandmothers) has an account.

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StartupLSatoshi
Cringeworthy post.

A post like this feels like a good way to seal your fate as a victim of the
crunch.

It's true that investors make mistakes. Don't feel sorry for yourself or
complain about it, figure it out. It doesn't get any easier (or so they tell
me)

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wylonis
i'm sorry to hear that you perceive this as some sort of excuse. that wasn't
my intention. we haven't started fundraising yet so i don't know which side
we'll land on. this was more meant as my personal observation on the VC
ecosystem and how I can see some of the dynamics leading to the crunch.

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nostrademons
It's generally not a good idea to imply that the people you'll be asking money
from don't know what they're doing or are doing it wrong.

From your lists of questions, yes, I'd say they're doing it wrong. But their
questions are their questions, and you don't get to determine what they care
about. It's their problem that they miss out on the next unicorn; just thank
them for their time and move on to the next investor.

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wylonis
yes it is completely their prerogative to ask whatever questions they want.
luckily a lot of investors do ask the right questions. my observation is just
that a lot don't and i wish they did because it would mean a lot more interest
in series A companies.

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pbreit
I was ready to dismiss the article because the first set of questions didn't
seem that bad and Fitbay doesn't strike me as a "unicorn". Though the next set
of questions does really nail it. But I think that's just a different way of
saying "can this team create traction?"

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wylonis
hey pbreit. i'm not saying that fitbay necessarily is a unicorn.. i'm saying
that there are potential unicorns among series a start-ups that are not
getting funded. but i agree that "can this team create traction?" should be
the most important question that investors ask.

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alrs
VC money has flowed freely because interest rates have been low, so capital
had nowhere to go.

Interest rates are going up in June, so there is going to be less VC money.

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brianwawok
Really? How much interest rate does it take to change things? Someone will
invest in foobar.com social toaster app over putting in a savings account
based on savings rate going from 1% to 2%?

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walterbell
Your example would be a 100% increase in cost of capital, which would be ..
significant.

