After having now gone through a few rounds of fundraising for Divvy, I noticed that the venture funding process is comparable to the dating game.
In the world of tech startups, the typical funding round progression goes like this: Seed Round, Series A Round, Series B, Series C, etc. A Seed Round is typically the easiest to procure. A founding team of entrepreneurs uses their seed funding to take an already built alpha or beta product (i.e., prototype) to market and show proof of concept, or in some cases, the seed funds are used to build the initial product (or if you worked at Twitter, you can raise millions of dollars across multiple rounds of funding, without even launching).
The Series A round might be the most difficult to procure. I don’t know what the actual statistic is, but given that 27% of statistics are made up on the spot, I’m going to say that 75% of the time, the seed-funded startup doesn’t make it to its A round (3 of my good [and incredibly smart] friends just shut the doors on their startups after a few years of hard work, and I only have 1 friend who has raised his A & B). However, when the company does make it through the next phase, the Series A is raised once the business has effectively used its seed capital by showing proof of concept and receiving some level of traction in the market.
Given that the company has succeeded in the eyes of most and the business model is proven, there is more clarity on how the Series A funds should be utilized; so, with those funds, the company scales and proves its value proposition further by acquiring more customers and generating more revenue. In time, the company will naturally have interested investors in its Series B round, often with the Series A investors leading or co-investing in the subsequent round.
The reason this process that seems so boring from the outside looking in is actually quite interesting and analogous to the dating process is that it is just like the number that Ryan Gosling did on Steve Carrell in the movie Crazy, Stupid Love to get him back in the game.
1) The Seed Round is the capital you use to get set up. You get a nice haircut, you get a tan (if you’re from LA or NYC), you get some pimpin’ shoes, fitted jeans, a sportcoat and other items that may enhance your steez. Once you get your “product” ready to rock, you showcase it to the girls/investors to see if there is any interest on their part in getting involved. With the appearance of potential success and the “audacity of zero” (See The Lean Startup by Eric Ries), there often is interest to take it to the next phase.
2) Skipping to the Series B Round…The Series B is akin to a guy that already has a gorgeous girlfriend. Other girls take notice and want to get involved. Similarly, if Kleiner Perkins did your Series A and you went out and got a boatload of traction, Sequoia and Kleiner may each be vying for you to sign their term sheet for the Series B, just as a group of girls at a lounge might vie for your attention, if Cristiano Ronaldo’s girlfriend, Irina Shayk, was on your arm (Note: Cristina Ronaldo is well funded).
3) The Series A, unfortunately, is often that in-betweener. You have a decent looking product, but not enough going for you to have a lot of interest from other girls/investors. And so, you either pivot your business model (e.g., change your look and see if girls like you more as a hipster) or undergo a firesale (e.g., just take what you can get and go on Match.com or, if you prefer algorithm-based solutions, eHarmony)…or you cut your losses and shut your doors (e.g., go back to your ex-girlfriend or join the priesthood).
And that is why fundraising is so much like blocking and tackling through the dating game. If you have any questions or comments about capital raising, feel free to email me directly. If you have any questions or comments about dating / soliciting interest from the uninterested, please email my colleague Omar at firstname.lastname@example.org.