Raising a larger amount of Seed money is the strongest predictor of Series A fundraising success. Error bars are +/- One Standard Error. Data from CrunchBase.
My last post (Accelerators vs Angels) showed that raising money from Angel investors was a significantly more important predictor of a startup’s ability raise a Series A round than was graduating from an Accelerator. But, it seems likely that there would be a big difference between raising small and large amounts of Seed money. This post looks more closely at this issue.
There are a large number of statistically significant attributes that are correlated with success in raising a Series A financing. But, one thing stands out if you want to maximize your startup’s chances of successfully raising a Series A round:
Raise a lot of Seed money.
The graph above shows this very clearly. Of course, the underlying causality is a separate issue, and is nearly impossible to identify with certainty. And the causality probably varies from company to company. But the likely key causes are (in approximate order of likelihood):
- Having more money from the Seed stage allows the company to get further along in generating the sort of traction metrics that will allow it to raise a Series A round.
- The company has been getting really great customer/user traction since its early days. That same traction that drew lots of Seed money to the company makes it highly likely it will be able to raise a Series A round.
- The founders are just really skilled at fundraising, both at Seed stage and Series A stage.
- The founders are rockstars (eg, $1B exit already) making it easy to raise money at almost any stage.
Using the CrunchBase dataset, and following the methodology used in the post mentioned above, we can construct the data table below for companies that raised Seed money in the period 2010 through 2013. This is the data plotted in the chart above.
Data used to produce the graph above, with addition of company counts in each range. CrunchBase dataset.
These results are really striking. Historically, a company raising a $150K Seed round has about one chance in 25 of raising a Series A round, while a company raising $750K has about one chance in four of raising a Series A.
Tom Tunguz recently posted an excellent analysis on a very similar topic. His results are similar to mine despite significant differences in the population definitions. So, I guess my post can be viewed as semi-independent (we used the same CrunchBase dataset, so it’s not truly independent) confirmation of his conclusions.