
Why it's hard to answer “when to raise a series A” - akharris
https://blog.ycombinator.com/when-to-raise-a-series-a/
======
OliverJones
When to try to raise a series A round? When you BOTH need the money to ramp up
your work AND you are ready to take on investors who want at least a tenfold
return on their investment.

Generally your series A investors will, between them, hold a majority of
shares in your company. If you have enough leverage to retain a majority share
for the founders and employees, you're probably already funding at least part
of your work from revenue. In that case you may not desperately need the
investment.

Before you raise a series A round, be sure you understand the meaning of
"Participating Preferred Shares."

Don't celebrate getting a series A round by using some of it to buy fine wine
(unless you're in the wine business). You wouldn't celebrate getting a payday
loan either.

~~~
mrkurt
I'm confused about what you're saying here. Usually a series A takes 15-25% of
the company. Are you saying that for acquisitions for less than the valuation
investors are the first to get paid? Because founders usually maintain control
these days for at least the first equity round.

And the beat time to raise an A round is when you don't need the money but you
can grow faster I'd you have it.

------
charleyma
"The longer a company has been in business – or the less good a founder is at
telling a story – the more concrete and certain the metrics of that business
need to be. Part of the challenge companies that have raised too much seed
money face is that the requirements they face for an A are significantly
higher than for those who raise less. They generally wait longer for their As,
so investors expect to see associated progress."

The tension that investors look at between time to executve and how much
progress has been made is really interesting. Is the the time horizon (and
thus expectation) very different for different industries? Is it relative to
existing incumbents and competitors?

~~~
EGreg
Ironically, the longer a company has been in business with slow growth, the
less attractive it is to a VC doing early stage investment.

One would think that such a company can turn around and more easily become
successful than a company which has only an MVP that generates no money, but
that’s not how VCs see it. They want to see “traction”, and even better, a
company amassing users like wildfire.

Twitter had no revenues for years but was raising at a $100M+ pre-money
valuation because of user growth alone.

If Twitter had added a business model and generated revenue but didn’t have
the hockey stick 5 years in, then VCs would actually be more averse to invest
in it.

~~~
danenania
I would think the key if you’ve been in business for a while and have
lackluster growth would be to sell investors on why the new direction you’re
going in has so much more potential than what you’ve done so far. Even if it’s
not a pivot, it might be better if it sounds like one. That way, instead of
extrapolating from your current numbers (bad for you), investors can give you
more of a clean slate.

Already having a userbase, revenue, a team, etc. in place is a massive
advantage, because these things are so hard to accomplish. If you tell the
right story, you should look infinitely better than an early stage company
that pivots due to lack of traction (and the latter get funded all the time).

------
matt_lo
If you're raising 1M+ in the midwest, it's straight forward. Get a meeting
with a VC associate in the region (Chicago: HP VC, Origin, OCA) and they will
tell you exactly what they're looking for in a Series A.

I've never had any success with getting institutional money at the seed stage,
but if you do get it, it's even easier to bypass some of the troublesome
checklist items you get in the A round.

~~~
akharris
All VCs are willing to give you a checklist of what they're looking for. I've
never seen a VC actually willing to fund solely based on a checklist of
objective metrics. This doesn't change based on region.

------
ninjakeyboard
I work at a profitable product startup that has managed to avoid raising
series A. As long as we can maintain the level of growth (which is honestly
close to breakneck with integration work for each customer site) I think it's
feasible to avoid raising/diluting while continue to grow but it's not the
easiest experience I've had. Lots of blood sweat and tears, particularly from
one of the founders.

I know some people might think the payout could be better raising series A and
hiring to support growth as is the more common road. The founders are going a
different route and so far it's going well. We can hire when we need to so not
to worried there. I don't know if this is a weird case?

~~~
beager
If you're profitable but desire the growth, could you take on debt instead?

------
tylermenezes
I think this more answers the question "when _can_ you raise an A" than "when
_should_ you raise an A".

Series A and later are really helpful in growing quickly. You should raise a
series A when it will give you a lot of growth per dilution -- that is, when
you have a clear plan for how the money will help you grow quickly, and some
evidence that your plan will actually work.

~~~
erikpukinskis
The article says explicitly that the answer to when you should is when you
can.

~~~
tylermenezes
That was overly simplifying and I don't believe for a second Aaron literally
believes you should raise any money you can simply because it's available. The
downsides of raising money you don't need are something tons of founders, YC
partners, and VCs have all discussed before.

------
boulos
Hmm. I honestly prefer Manu's blog post and phrasing from 2012:
[http://www.k9ventures.com/blog/2012/05/31/hope-and-
numbers/](http://www.k9ventures.com/blog/2012/05/31/hope-and-numbers/)

------
andyidsinga
I think the other article referenced ( [https://blog.ycombinator.com/process-
and-leverage-in-fundrai...](https://blog.ycombinator.com/process-and-leverage-
in-fundraising/) ) provides better guidance, specifically :

> Because most venture returns are driven by a tiny number of companies,
> investors know that they need to invest in those companies in order to make
> money.

The trick, then, is convincing investors that your company will be one of
those outliers.

The missing part in this article about "when", imho, is that _when_ might have
a lot to do with the timing of a startup's outlier story and how well it
matches with a particular VC's fund size.

------
api
I found a series A to be very ambiguous. Some people thought of it as a big
late-stage seed and others had more series B type expectations.

IMHO the series thing is outdated. Just call it R0, R1, R2, R# where # is
round number and be done with it... or move to a continuous fine-grained fund
raising model.

------
tedmiston
> This sounds good, but we’ve seen As happen for Saas companies with ARR
> between $200k and $9m with plenty of companies failing all along that range.

Is that intended to say failing or falling?

~~~
akharris
"Failing" was intentional. Both words would be true, but in this case I'm
pointing out that the metrics do not guarantee the round.

~~~
ggg9990
How did a $9m ARR company fail to receive a Series A? Disagreement over terms?

~~~
swampthinker
Plenty of potential reasons. Stagnant growth, really poor executive team that
got lucky, serving a dying industry, tapped out growth potential, poor unit
economics, etc.

~~~
hinkley
Financial or legal liabilities. Of the few rounds I got to see anything like
transparency, I saw one get hung up because they had allowed an uncertified
investor in during the seed. I think that guy might have been the only
investor to get their money back because they had to buy him out and the money
ran out before they closed the round.

(Some VCs are perfectly happy to let you run low on funds to get better
terms).

------
portman
akharris --

Any pointers on the most polite but firm way to defer speaking with investors
when you're not ready to raise?

We just raised Seed, and get 5-10 inbounds per week asking about Series A. I
usually write something like:

"Thanks for the note. We recently closed our seed round and are not looking to
raise at the moment. But we will definitely reach out when that changes."

Hopefully that's not too curt/dismissive? Thanks in advance for any tips.

~~~
akharris
That's a great response. If the investor is someone you do want to get to
know, it doesn't hurt to set some time 3-6 months into the future for a short
chat.

------
patrickryan
TLDR

"...this doesn’t provide the sort of certainty I know founders want in
answering the question of when to raise. However, I think that knowing that
there is no clean answer is important because it provides a framework for
thinking through the relative advantages you have when thinking about a
raise."

~~~
connoredel
In my experience, finding a framework when you're searching for a solution is
not a consolation prize. When the consolation prize is the only prize, it
feels like the first place trophy -- and it is, at that time. The solution
doesn't actually exist yet, but now you have the tool to find it.

About a year ago, I had this inescapable feeling that I was spending my time
poorly (not daily productivity but on a larger scale), and it was causing me a
lot of anxiety. Then I read How Will You Measure Your Life? by Clayton
Christensen. I walked away with a framework for finding out what I want to be
productive towards, even though that thing -- whatever it is -- was no more
clear to me. My anxiety disappeared, which is what I wanted all along!

------
dustingetz
Is there such thing as waiting too long to raise?

~~~
akharris
There is - it's possible to miss your window. This usually takes the form of a
company that has figured out how to start scaling revenue, does not take
advantage of the leverage, and then plateaus as a function of not having the
capital necessary to expand.

For the better half of these businesses, this ends up being ok. They settle
into a slower growth model that produces a great cashflowing business. However
there are others who are unable to get to profitability on remaining funds and
die as a result of not having enough capital.

------
justonepost
Tldr, series A is a balance between traction or more young, charismatic ivy
league graduates. The less you have of one the more you need of the other.

I'm always amazed how much it takes for people to say pretty simple things.

~~~
blennon
If I could downvote your comment I would because this is not an accurate
synthesis of the article.

"more young, charismatic ivy league graduates" is not at all what the author
describes. The author's thesis is that raising a Series A has requirements
ranging between a Seed round which is based on, "the quality of the founders
and the raw story that they can tell about their company and the future that
company will create" and a Series B which is based on "[the] need to have
accomplished a significant set of things that prove their ability to
accomplish that future".

~~~
DenisM
I know a (small) number of YC companies and they all have a "young,
charismatic ivy league graduate" on board. I imagine there's some sort of
subconscious bias at play here that equates those properties with "quality of
the founders".

Be that as it may, if you're one of those people you can use it to your
advantage and get away with less traction.

~~~
blennon
Young, charismatic ivy league grads are one specific instance of "the quality
of founders ". Another, equally fitting one is, "A successful serial
entrepreneur with an exit or two under their belt". Another, albeit seemingly
outdated one is, "a former Googler". There are many ways a founder can be of
high quality that are not ivy league grads.

~~~
algirau
Being a YC founder, I am not an Ivy league grad but a PhD drop-out who happens
to have the combination of domain expertise, technical understanding, and
charm.

Your poor conclusion of "ivy league grad" is ridiculous. If anything YC looks
for doers not those that have.

~~~
rdlecler1
If you would have said you were a high school dropout and poor communicator
this would have made a point but PhD + charm is phenotypically similar to an
attractive ivy grad so you’re kind of proving the point.

~~~
algirau
"phenotypically similar"

Please be aware this is your bias, your POV. You can't use it to prove your
own point.

PhD is nothing similar to your connotation of Ivy League grad. The former
requires years of sacrifice, ruined relationship, and missed experiences to
master an esoteric part of science. The latter has the connotation of
privilege.

------
danvoell
TIL: Tautological - an argument which repeats an assertion using different
phrasing

~~~
dguaraglia
I remember learning this in high-school as part of propositional logic, and it
was essentially described "the opposite of a contradiction":

[https://en.wikipedia.org/wiki/Tautology_(logic)](https://en.wikipedia.org/wiki/Tautology_\(logic\))

[https://en.wikipedia.org/wiki/Contradiction](https://en.wikipedia.org/wiki/Contradiction)

Is the teaching of propositional logic common in the US?

~~~
krallja
I did not learn propositional logic until I was in college.

~~~
dguaraglia
To be fair, the school I went to was very particular, as it ran by the same
university that ran the college I went to. In a way, a lot of the subjects we
took early on were preparing us for college.

------
kmano8
Read the headline and immediately thought there was a company named "When"
raising a series A.

~~~
quickthrower2
I took it as a poker reference. "When to raise..."

------
tgray96
Terribly confusing article name.

