According to Crunchbase and the Wall Street Journal, Startupland is currently experiencing a huge Series A funding crunch. While a relatively large number of companies raised seed rounds of $1 million (or more), an overwhelming majority of those companies are struggling to get their Series A.
I won’t go into the details why (you can read the linked articles if you want to understand all that). Instead, I’ll note that the Series A crunch isn’t new. It might be a bit more pronounced at the moment, but, even when more seed stage startups are successfully moving to Series A, the conversion rate is nowhere near 100%. In reality, crossing from seed stage to Series A is really difficult, and most founders can’t pull it off no matter what the macro environment looks like because they don’t focus on the one thing Series A investors actually care about.
I was recently meeting with one of these founders struggling to close his Series A. “We’ve only got five months until we reach the end of our runway,” the founder said as we ate burgers at a local lunch spot. His company had raised a $1.5 million seed round 18 months prior, but the A round wasn’t coming together. “We’ve either got to close money soon or drastically cut expenses, otherwise we’re dead in the water.”
“Or?” I asked, prompting him toward a third option.
“Or what?” the founder said with a raised eyebrow.
“There’s a third option you’re missing,” I responded. “What about that third option?”
“I don’t see a third option,” the founder sighed. “Things are getting dire.”
I shook my head. “This is the problem with most seed-stage companies,” I told him. “They get so obsessed thinking about their runways in relation to fundraising that they never see the third option for funding their companies. It also happens to be the most important option!”