Times they are a’changin: Series A is not what it used to be

Ben Gilbert (0:00)

Ooh, all right, David, good Huawei episode.

David Rosenthal (0:04)

Yeah.

Ben Gilbert (0:05)

I think. Man, that was like, I mean, it was a very different episode for us.

David Rosenthal (0:09)

Yeah.

Whenever we embark on the research process, and then the recording process for an acquired episode, there's always the element of the unknown, you know? Where like, we think this is an interesting story, but we don't really know what the story or the conclusions are until we do the research.

Ben Gilbert (0:25)

Yeah, like in Pinterest, we were afraid that there was no story there. We were like, everything was just like nice the whole time. And then like, you sort of have to get in there to find the themes.

David Rosenthal (0:34)

Yeah. In this one, we were pretty sure there was a story there, but I feel like we ended on a bit of a downer, but that's what it is.

Ben Gilbert (0:42)

Well, do you want to do an LP show?

David Rosenthal (0:44)

Let's do an LP show.

Ben Gilbert (0:45)

Listeners, we're kind of winging it here. We hope you will bear with us. I actually think this is going to be cool, because when we first started out on the LP show, we thought we were just going to have a lot of this sort of casual conversation. We've ended up, for better or for worse, making it much more sort of instructional, structured content. That's great for creating a lot of evergreen stuff. This episode may end up being evergreen too, but the goal is to make this one a little bit more fluid and a little bit more like when David and I actually get together for drinks and BS about VC and tech stuff.

Of the topics that I texted David that we decided to talk about today, it's how the capital landscape has shifted, including everything from the Vision Fund to Series A, moving later to valuation increases to seed funds emerging.

I don't know exactly how we're going to end up titling this episode, you know it and we don't at this point. That is the conversation jumping off point for us right now.

David Rosenthal (1:42)

A good focusing point for this, we'll link to this in the show notes, the venture capital firm Wing did a really amazing piece of work that they published last year in 2018, and then they updated it recently this year about the state of early stage venture capital, specifically Seed and Series A.

And the thesis that they put forward, they're not the first ones to say this, but they have just an incredible, like really great amount of data to back it up, is that in the VC financing market today, Seed is the new Series A, and Series A is the new Series B. And there's all sorts of really interesting reasons for that and implications on what that means. So we're gonna jam on that for a little bit.

Ben Gilbert (2:25)

Yeah, and I think we all sort of intuitively know this.

David Rosenthal (2:27)

Or at least those of us who are like active participants in the market.

Ben Gilbert (2:31)

Sure, but it's interesting to sort of think about why, sort of both macro economically and also like, how that manifests in, you know, year over year, like how does a market shift when people say, oh, well, market right now for a seed deal is raising two million on about, I don't know, five to eight pre-money. It's like, okay, but who the heck set that? And how does that move when it moves? Because it's not like there's a ticker for this stuff that like you can go look at the stock price of what a seed deal should be.

And so it's interesting to sort of like, start thinking about the factors of what nudges this stuff.

David Rosenthal (3:08)

What's really interesting and to run through, actually don't have the data right in front of me, but some of the findings-

Ben Gilbert (3:14)

That's the best way to do an episode.

David Rosenthal (3:16)

In this piece, yeah, yeah, no data. But I've been looking at it enough that I think I can remember what it is off the top of my head.

The way early stage venture financing used to work is you raised a seed amount of capital, often from angels or maybe there were institutional investors who invested, but it was a couple hundred thousand dollars. And that was the first amount of money you raised. And then you raised a Series A that was from an institutional venture capital firm. But it was three to five million dollars. And you used that, you had maybe built a first version of the product on that seed money that you raised, but then you used that A to really build the first version of the company around the product. And then you would raise a Series B and that was about scaling that.