Marc Andreessen kicked off another great debate on Twitter last night, one that I’ve been talking about incessantly in private circles for the past 2-3 years – what actually IS the definition of a seed vs. A-round.
Cautionary note: No competent VC is actually fooled when you show up after raising $6M in seed financing and say you’re now raising an A!
— Marc Andreessen (@pmarca) October 7, 2014
This is something I think entrepreneurs don’t totally understand and it’s worthwhile they do. My view:
“Spending any time or energy trying to game the ‘definition’ of your round of fund raising is a total waste. Nobody cares. No VC will be so naive as not to see straight through it. And actually many will probably find the gamesmanship as a bad sign of lack of property priorities or perspective.”
Here’s how all the drama started for me.
When I first became a VC, seed rounds were typically $500k – $1.5 million. There weren’t a lot of seed funds in 2007 so this was often done by angels, funding consortia or sometimes early-stage funds that existed then (First Round Capital, True Ventures, SoftTech VC, etc.). A-rounds back then seemed to be anywhere from $2-3 million (LA or NYC) or up to $5 million in Silicon Valley. $5 million was always the classic definition of an A-round between the late nineties (crazy financings aside) and say 2007.
What changed — and why the definition changed — was it became 90+% cheaper to start companies and thus seed funds appeared en masse as did angels so the size of seed rounds actually INCREASED and the size of A-rounds in many instances decreased.
Note: this is a non-religious post.
This weekend was Yom Kippur, holiest of the Jewish holidays and the day of atonement. It’s also the day when most Jewish minds are least focused since one needs to fast for 24 hours.
I sat in schul listening to the rabbi’s sermon and given my mind is prone to ADD anyways I must admit that my consciousness often floats around the room but even more so on Yom Kippur. But our rabbi captivated me this year and reminded me of one of the most important lessons I learned myself 15 years ago.
She started with a story — a parable — as Jewish people are wont to do. She told of the teaching of the Talmud – a book which scholars use to debate doctrine and from which Jewish people are reminded to always learn and to debate.
“A rabbi is teaching a young Jewish scholar and he says, ‘Two men go down a chimney, one is dirty and the other is clean. Which one takes a shower?’
‘The dirty one takes a shower says the young scholar.’
‘Are you sure? What if the dirty one saw the clean one perhaps he would assume that he himself was clean.
I was reading Danielle Morrill’s blog post today on whether one’s “Startup Burn Rate is Normal.” I highly recommend reading it. I love how transparently Danielle lives her startup (& encourages other to join in) because it provides much needed transparency to other startups.
Danielle goes through some commentary from Bill Gurley, Fred Wilson and Marc Andreessen about burn rate and then goes on to discuss her own burn rate and others publicly weigh in.
But what IS the right amount of burn for a company? Turns out like most things there are no simple answers. Let’s set up a framework. Here’s overall what you need to know.
1. Gross Burn vs. Net Burn
Burn rate in case you don’t know is the amount of money a company is either spending (gross) or losing (net) per month. (it is also the title of
By all measures the past year has been successful. Teams that I’ve backed have sold their companies to Disney, Apple and AOL for substantive amounts of money. Founders have done very well, our fund has done well. Exhibit: Champagne and celebrations.
But the truth is that selling a company doesn’t always feel like a celebration as a VC. Not being a baby about it – my job is to return money to LPs. But I’ve been thinking about what had me a bit down about selling Maker Studios, Burstly and Gravity. Each of those teams were family. And the family extended beyond just the management team to include investors and the boards.
The more I’ve internalized things I’ve come to see selling a company like graduating high school or college. One day you have these great friends that you talk to all the time, you deal with tons of personal issues and drama, you have highs and lows but dammit – you were there together. I went from weekly (sometimes daily) phone calls with senior members of the team or other VCs. And now we barely see each other. And I miss those interactions. I miss those friends.
We’re all still friends but it’s not the same. Life moves on. You graduate.
Recruiting. It is the bane of every startups existence because it takes up so much time, it is so competitive to sign people and it feels like unproductive time because it’s not moving the ball forward on product, engineering, sales, marketing, biz dev, fund raising. It consumes time and energy and the payoff doesn’t come for a long time.
But of course great teams build great companies and great startup leaders know that they must always be recruiting.
Yet most startup companies I’ve ever worked with or observed make one crucial mistake: They assume that their recruitment process for a candidate is over when that person accepts his or her offer. The truth is the process isn’t over until after the employee starts with the company, updates her LinkedIn profile and emails all her friends.
In fact, it’s worse than that. The moment your future head of sales, marketing, product or even junior developer says “yes” is the moment you’re most vulnerable of losing them. I’ve written about this before relating to any sales process –