

The Decreasing Follow-On Financing Success of Startups - randall
http://tomtunguz.com/declining-follow-on-success-rates/

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randall
This should trigger alarm bells in all would-be startup founders. These sorts
of patterns should have founders debating about doing things like Bryce
Roberts' indie.vc experiment.

[http://bryce.vc/post/116925485725/drafting-a-declaration-
of-...](http://bryce.vc/post/116925485725/drafting-a-declaration-of-
independents)

I think given this environment (the barbell shape of current day funding) the
next financier who wants to make a big impact should fix this middle part of
funding. I'd wager right now companies are dying in the series B land that
shouldn't be, which means probable opportunity. (YC seems to have fixed early
stage financing, so maybe some vc could be innovative enough to have YC level
clout in series A land? Maybe it'd cost too much money to pull it off?)

~~~
exelius
I think there are a few things causing this:

1\. Early stage funding is much easier to acquire than it used to be. This
means there are more companies looking for A rounds after a seed stage than
there ever have been. At this point, everyone thinks they're a big shot and
very few people actually are, so their feelings get hurt when there's lukewarm
VC interest in an A round.

2\. The smart money has moved from B rounds to C rounds because there's too
much noise in the early rounds. By C rounds you know more about the company's
chances of success because you need meaningful revenue and a viable business
model to raise C round money, but investing in a B round you often don't know
an awful lot more than you did about the long-term viability of a company than
you did at seed stage.

3\. Companies are failing faster as a result of 1 and 2, which reinforces the
perception that the smart money is moving out of B rounds.

I don't think that having more companies fail at A or B rounds is a bad thing;
but the VC market is increasingly focused on the unicorns that will have a
$10B IPO in 10 years. There are only so many of those that the economy at
large can support. And I don't think that there will be a "Like YC, but for A
rounds" because the sums of money we're talking are several orders of
magnitude bigger. Seed companies need training in how the business world
works, how not to get taken advantage of, how to build a model that scales,
developing a plan, etc. The money is somewhat secondary in a seed round.
Companies raising an A round might need a little bit of guidance and support
in fine-tuning their plan, but mostly they need money to hire people and
execute on their plan. If you're raising a B round, you just need money. YC
solved the problem for seed rounds by just hiring people who know these things
and sharing them among a bunch of companies.

And I wouldn't say that YC has single-handedly solved the early stage funding
problem. They simply don't have that scale -- nobody does. They have somewhat
indirectly solved it by showing the world a model for operating a sustainable
startup accelerator that others have copied; and they are hugely influential,
but I don't think any one organization can solve a problem like this. It's too
much.

