Understanding Series a Funding Dynamics

"My VC blocked my follow-on deal just so they could get a bigger share of my company." His Series A lead investor sabotaged a competing term sheet... Not because the deal was bad, but to force a flat round and increase their ownership. The company was growing 15% month-over-month, but bleeding cash. It had six month of runway when the new investor offered $20M Series B round at $70M valuation post - a somewhat aggressive dilution. The Series A lead didn't like the dilution and wanted a bigger share of the company. Instead of taking the deal he trashed the new lead and convinced the other investors to wait for a better deal. The BOD decided to reject the offer. Three month went by and fundraising was going sideways. With only three month of runway left, the series A lead forced the company to do an insider round - $10M at $40M valuation - an extension of the series A - because "their company's back was against the wall". This is down/flat round manipulation that VCs don't want you to understand. After seeing this across my network, I've identified the pattern: Some VCs intentionally create funding crises in their potential winners to consolidate ownership at low valuations. The playbook: - Block or discredit competing investors through blocking rights or negative references - Wait for runway to dwindle and desperation to set in - Offer "rescue" financing at punitive terms - Blame market conditions while accumulating ownership The founder's choice: Accept dilution or watch his company die. The cynical part? This strategy is perfectly legal and often praised internally as "savvy investing." If you're raising venture capital, remember: Not all VCs want to help you build maximum value. Some want to maximize their outcome, even at your expense. Pick your funding partners carefully. In my next post, I'll share exactly how to protect yourself from down round manipulation. #VentureCapital #DownRounds #FounderAdvice

This year, eight of my CEOs successfully closed Series A rounds, ranging from $9M to $45M. Here are 10 key takeaways from their experiences that can help you navigate your own fundraising journey: 1) Rounds took longer than anticipated. On average, they took twice as long as initially planned, largely because VCs are moving much slower than before. 2) There's no pressure for a VC to commit, allowing them to draw out the process. Many VCs strung founders along. My most effective CEOs leveraged backchanneling from existing investors and relationships to cut through the noise and focus on genuine interest. 3) VCs wait for signals. Don't expect a quick "yes." VCs often hold out until they see strong signals of other investors committing. Each CEO effectively had to build a coalition of interested parties. 4) Craft your FOMO. Every CEO found a unique way to create a sense of urgency and healthy competition among potential investors. This is a delicate balance; you don't want to push too hard and risk a "no." 5) Relationships matter. Every single Series A was led by a VC with whom the founders had a prior relationship from their seed round. Nurture those connections! 6) Prior investor validation is key. All rounds included follow-on investments from prior investors, serving as a powerful signal of confidence. 7) Two years of runway is essential. Be prepared to demonstrate a clear path to at least two years of runway. This shows stability and thoughtful planning. VCs are wary of short turnaround times and want to avoid emergency financing situations. 8) The bar for PMF is high. The bar for product-market fit and traction is higher than ever. Show strong, undeniable evidence of your market validation. 9) Be ready to adjust expectations. Some CEOs had to adjust down their original Series A expectation. They were able to put together operating plans that cut down on costs to stretch runway and do more with the original capital, thereby reducing their overall ask. 10) Your network is your net worth. The power of existing relationships and warm introductions cannot be overstated in this competitive landscape. The VCs who went deep didn't come from cold emails or random LinkedIn lists; they came from warm intros from investors or relationships the CEOs had personally cultivated. Good luck to everyone raising. It is possible! You just need to be thoughtful and have a strong support network behind you. Any other fundraising advice or challenges to share? #startups #venturecapital #founderstories #seriesA #siliconvalley

I ask, "How will you use the funds?" of every founder I speak to about advisement or investment. Not every founder answers it well, but often they can put it into a few buckets. The next question I ask is, "What does your model say you need to raise?" --This is where the rubber meets the road.-- How they answer the second question tells me if the founder understands what the money raised will do for them, how detail-oriented they are, and how goal-driven they are. The decision to raise money - and the amount - should not be arbitrary, an estimate, or ambiguous. It needs to be based on a real need to drive the growth of the business - and the financial model needs to tell that story precisely. Every dollar needs to be accounted for with a return on the investment assigned. Here's what investors want to see: • Clarity: "We're raising $1M to expand marketing, hire a sales lead, and improve our product," isn't enough. Break it down. How much for each? What specific results do you expect? • Alignment: Your use of funds should match your stage. Seed-stage? Prove traction. Series A? Scale growth. If you're spending on non-critical things (office space, perks), that's a red flag. • ROI Focus: Show how every dollar fuels growth. "We'll invest $250K in paid ads, expecting a 4x return in 12 months," inspires confidence. Vague promises don't. Your use of funds is not just a line in your pitch—it's a statement about your vision, strategy, and accountability.

The Reality of Video Game Investments Even now, pre-seed and seed rounds are competitive for investors: everyone wants to be the one who discovered the talent and had the highest ROI. Fund investors expect VCs to do exactly that. This leads to situations where most VCs want to participate in the first round but are reluctant to join following rounds if they weren't in early. After all, what’s the point for LPs to back them otherwise? This is especially true for gaming VCs, where LPs expect not just financial returns from their VCs but also co-investment opportunities and market insights, so the funds with the best access to original deal flow win. This creates a vacuum at the Series A and later stages, which can be a brutal wake-up call for founders who previously enjoyed FOMO-driven fundraising because of their ex-Riot/Blizzard/you-name-it pedigree and had no problem raising their seed round at very (stupidly) good valuation, but now are struggling to raise their Series A. In the games industry, Series A is usually not about scaling a functional business with strong revenue yet. It’s more of a "market validation stage" - early KPIs, an MVP, a demo, or, in the best case, first revenue. So you raise to get exactly to this point. And then founders are left wondering: "How come? Where are all the investors? Why can't we raise the next round just as easily as the first one?" Exactly. That’s why: There simply aren’t enough growth-stage gaming investors and you are not yet attractive to financial investors - which is nuts! Because in my opinion, it's actually the best stage for financial investors: most of the stillborn projects are out, there’s real traction, the game will likely be released after this round, and there’s almost no competition — meaning you can get amazing terms. Still, while the disproportion is brutal, there are active growth-stage investors out there, both VCs and strategics. We are lucky to have great partners joining us and plenty of follow-on rounds in our portfolio. The first TGF fund is $50M, and our companies have raised close to $80M in follow-on rounds. Tell you what, it is crazy hard. And I am especially proud of the rounds where we invited our LPs to participate, and now those companies are doing pretty good. I just can't believe how different life is at Seed compared to Series A. It’s a different world. Do not forget that when you celebrate your successful seed round!

Founders: your next fundraise could be a make-or-break moment. Don’t let inflated valuations or poor cash flow management sidetrack your success. As down rounds and flat rounds become more common, now is the time to focus on building a sustainable, capital-efficient business that thrives regardless of market trends. In 1H 2024, flat and down rounds hit a decade high at ~30% of all deals largely due to inflated valuations from previous years. Founders who raised at inflated valuations but couldn’t meet expectations during their next fundraise are now raising in flat or down rounds. If you're raising a seed now, research related Series A deals to understand the benchmarks. Use that data to reverse-engineer your seed round and the milestones you’ll need to hit by Series A. Let’s say you’re raising a $3M seed on a $10M post$ valuation for 18 months of runway. You’re currently at $800k ARR and expect to close the year at $1M ARR, projecting 400% growth YoY. In 18 months, you’ll need to raise again unless you hit breakeven. Fundraising can take 3–6 months, meaning you’re likely back in the market in 12 months. What will your fundraising story be in 12 months? If your industry comps are seeing 10x LTM revenue, you’ll want to aim for $3M+ ARR by the time you raise your Series A for a $30M valuation. You should project $9M+ ARR the following year, with a well-defined pipeline that backs it up. For those aiming for unicorn status ($1B valuation), there's a widely followed rule known as 'triple, triple, double, double.' This means after you achieve $1M in ARR, you triple your revenue for two years, then double it the next two. If you're at $1M ARR today, you’ll aim for $3M ARR next year, $9M the year after, and eventually $36M ARR in year five. Not every company will follow this, but it’s a powerful framework for setting aggressive growth targets. Keep in mind, venture capital investors have investors, too. There are return profiles we need to see and believe in before writing a check. I’ll dive into that in another post. Cash flow management is critical because anything can happen between rounds. Customers can churn, prospects can ghost, and entire deals can vanish due to a leadership change at the company. “Growth at all costs” is no longer the standard. Many investors now prefer capital-efficient startups with strong margins and a path to profitability. Once you’re out of cash, you’re out of cash. You do NOT want to raise for 18 months of runway only to find yourself raising again in 6 months because of poor spending discipline. This will shift your focus from growing the business to raising capital, and you’ll lose more equity than necessary and dilute your current investors prematurely. Set weekly, monthly, and quarterly budgets. Regularly compare them to your actual spend to keep your financials in check. Raising capital is about more than just runway. It’s about sustainable growth and setting your company up for long-term success.

You don’t raise a Series A to find a market. You raise a Series A to own one. Too many founders treat pre-Series A like an extended beta phase. Before you step into that room with investors, Your GTM must show signs of repeatability. Not just early wins, not just good logos, But a real system that is beginning to scale. Before you even think about raising, Your GTM strategy should have 4 non-negotiables: ↳ Clear ICP (one that wants to pay, not that just likes the demo). ↳ Sharp positioning that creates immediate contrast from alternatives. ↳ A predictable system for lead generation (not random cold emails). ↳ Early proof that your unit economics work under pressure. Most founders chase logos. Operators chase repeatability. Investors chase certainty. Series A isn't about convincing VCs you're smart. It's about proving you can scale what you already know works. If you’re building your GTM for Series A: ↳ Optimize for predictability over perfection. ↳ Clarity over complexity. ↳ And systems over spikes. At Seed, potential carries you. At Series A, predictability is what gets funded. P.S. What’s the one GTM mistake you see most before Series A?

The Hidden Deal Room: Inside Series Stage Investment Rounds (Part 1) The Complex Dance of Multiple Players and Parallel Negotiations In the glossy world of startup funding announcements, we often see just the final headline: "Startup X Raises $Y Million in Series A." But behind these clean numbers lies a complex dance of negotiations, competing term sheets, and intense due diligence that few outside the process ever witness. As someone who has been on both sides of the table, let me pull back the curtain on what happens during these crucial moments. The Invisible Competition When a startup announces they're raising a Series A, B, or C round, it's rarely a simple one-to-one conversation with a single investor. Instead, picture a bustling marketplace where multiple parties are simultaneously: - Conducting parallel due diligence processes - Competing to get into the deal - Negotiating different terms and valuations - Racing against internal investment committee deadlines - Building relationships with the founding team The Complex Choreography - The Silent Period: While the public sees nothing, founders are typically - Term Sheet Wars: What many don't realize is that the most promising startups often receive multiple term sheets. This creates a delicate balancing act - The FOMO Effect Behind-the-Scenes Players The visible lead investor is often just the tip of the iceberg. Behind them, you might find: - Silent strategic investors - Family offices seeking allocation - Existing investors exercising pro-rata rights - Corporate venture arms conducting parallel product evaluations The Time Pressure Cooker While a funding announcement might seem like a single moment in time, the reality is a pressure-cooker environment where: - Legal teams negotiate different versions of documents - Cap table scenarios are constantly recalculated - Existing investors weigh follow-on decisions - Founders balance current operations with fundraising Stay tuned for Part 2, where we'll dive deep into the critical negotiations and human elements that make or break these deals. Follow me to be notified when it's published. #VentureCapital #StartupFunding #Entrepreneurship #VentureDeals #InvestmentStrategy

I’m consistently reminded that what feels like “basic” funding stage knowledge is often anything but basic for many founders. That’s why every once in a while I reshare these two pieces with founders I talk to: - Back to Basics for Fund Raising Stages: Pre-seed to Seed to Series A → link: https://lnkd.in/gsvdD8cE - Stages of Funding Rounds by Startup Phases from Seed to Exit → link: https://lnkd.in/gRyD9Aka Because clarity is a rare but valuable commodity in fundraising. At NuFund Venture Group & Cross Ocean Ventures, we see these valuation and stage-label dynamics play out in real time across diverse sectors and geographies. 📊 Peter Walker at Carta just shared a fascinating chart on why round names still matter — even if everyone complains about them. What the data shows: 💡 Two companies can raise the same amount but get very different valuations depending on whether it’s called Seed, Series A, or Series B. 💡 Example: $15M at Seed → median $58M post-money. $15M at Series B → median $93M. Why? 1️⃣ Later-stage companies have more total capital raised (valuations reflect that). 2️⃣ Higher traction & metrics are required as you move up the alphabet. 3️⃣ Some founders strategically label rounds to stand out. Highlights from Carta figures that stand out to me: 💡 Not all $10M–$19M rounds are equal: 64% of these are Series A, 18% Series B, 18% Seed — showing that stage naming is far from standardized. 💡 Series A creep: Over the past few years, the time from Seed to Series A has stretched from ~18 months to 24–30 months, with Series A companies now often showing double the revenue/ARR they did just a few years ago. This inflates Series A valuations and round sizes, which then cascades upward to Series B. 💡 Sector nuance: Life sciences can hit Series B valuations with lower revenue due to regulatory milestones; AI startups can jump valuation bands based on tech defensibility and speed-to-adoption, not revenue alone. This skews medians when lumped with SaaS or consumer plays. For founders: 📌 Map your story to the market’s mental model: Round names may be imperfect, but they set investor expectations on traction, risk, and use of funds. Mislabeling can win short-term buzz but backfire in later raises. 📌 Treat each stage as a system — know exactly what needs to be solved before moving to the next. If you’re raising a “big seed” that looks like a Series A, have Series A-level proof points. For early-stage investors: 📌 The “same round size, different stage” gap is a market signal (not noise). It can help identify undervalued or overvalued opportunities when you know the backstory. If you’re not already following Peter Walker, you should ! Peter is one of the few sources that consistently share primary data that reflects real market behavior, not just recycled takes.

Traction is growing, the vision is compelling. You feel ready for that major Series A leap. But feeling ready and being ready in the eyes of sophisticated institutional investors are two different things. Here's how to really be ready: 📊 Financials: Storytelling with numbers (that add up) Beyond accuracy: Clean books are table stakes. Can you demonstrate scalable unit economics? CAC payback, LTV:CAC, gross margin trends? these aren't just metrics, they're your growth story validated. Forecast credibility: Do you have a robust, driver-based financial model? Can you articulate key assumptions clearly? Investors need confidence you understand the levers of your business and the capital required to pull them. Process maturity: Basic financial controls, timely monthly closes, clear budgeting/forecasting processes. Show you can manage investor money responsibly. 🧭 Management control: Governance beyond the Founders Decision framework: Is there a clear, documented process for major decisions (hiring, spending, strategy)? Board readiness: Even pre-investment, operating with some formal structure signals maturity. Are you prepared for formal board oversight and reporting? Information flow: Can you consistently produce the KPIs and financial/operational reports an institutional board will demand, before they ask? 📑 Cap table management: clean & crystal clear Hygiene is paramount: Zero discrepancies. All previous rounds (SAFEs, Notes, Seed) perfectly converted and accounted for. ESOP pool correctly allocated and documented. Transparency: A fully updated, easily understandable cap table (using a platform like Carta or Pulley is strongly preferred). Outstanding issues resolved: Any lingering founder equity splits, advisor promises, or old convertible notes must be finalized and documented before Series A DD kicks off. ⚖️ Agreements formalization Corporate housekeeping: All major contracts (key customers, key vendors, IP assignments, leases) signed, organized, and readily available. Employee/contractor Clarity: Solid offer letters, up-to-date contractor agreements, signed confidentiality/IP assignments for everyone. Legal Foundation: Articles/bylaws current and clean. Previous financing docs (Seed, SAFEs) fully executed and filed. No skeletons in the legal closet. Why this matters (the cold hard truth): Series A investors aren't just buying your vision; they're buying into your execution capability and operational maturity. Significant diligence time and cost will be spent verifying these foundations. Weakness here isn't just a negotiation point; it can kill the deal, delay it massively, or crater your valuation. The CFO takeaway for CEOs: Getting these pillars solid isn't just "finance stuff." It's de-risking the investment and demonstrating you lead an execution engine. It builds immense credibility and trust during the process. Start this work now, long before the first VC meeting.

Term Sheet Template by MIT: Navigating Series A financing is crucial for startups aiming to scale. MIT has developed a comprehensive term sheet template that provides a solid foundation for understanding the complexities of venture capital deals. Key Elements from MIT's Template: 1) Investment Details: Clearly outlines the investment amount, valuation, and how it impacts equity distribution, e.g., $4 million investment at a $4 million pre-money valuation. 2) Capital Structure: Details the post-financing equity distribution among founders, investors, and option pools. 3) Conversion and Preferences: Specifies terms for converting preferred shares to common shares, alongside dividend rights and liquidation preferences. 4) Voting Rights and Protections: Includes clauses that safeguard investors' rights to influence significant business decisions. 5) Utilization of Funds: Emphasizes the importance of detailing how the raised capital will be used, ensuring financial prudence. Why This Matters: A term sheet is pivotal in aligning the interests of founders and investors, offering a strategic outline for growth and governance. MIT’s template serves as an educational tool for startups, guiding them through the critical components of venture capital financing. For entrepreneurs gearing up for a Series A round, familiarizing yourself with these elements can greatly enhance your negotiation capabilities and attract the right partners. PS. check out 🔔 for a winning pitch deck the template created by Silicon Valley legend, Peter Thiel https://lnkd.in/ea6QGvHt