Founders Don't Raise a Small Seed Round If Going to Series A

Founders - don't raise a small seed round.

Wait, what? Isn't the current advice to raise as little money as possible? Isn't fully bootstrapped even better?

𝗗𝗲𝗽𝗲𝗻𝗱𝘀 𝗼𝗻 𝘄𝗵𝗮𝘁 𝘆𝗼𝘂𝗿 𝗲𝗻𝗱 𝗴𝗼𝗮𝗹𝘀 𝗮𝗿𝗲.

If the end goal is to take the traditional venture path to Series A, it looks like raising too little at seed is an issue.

We looked at 4,000+ software startups (US only, on Carta) that raised a seed round in a given year. We then took the percentage that made it to a Series A round in 24 months or less.

Data is split by the year of the raise and the size of the seed round:

• Small = Under $2M

• Medium = $2M-$5M

• Large = $5M +

This "graduation rate" clearly differs by year, with companies that raised their seeds in early 2022 having much more trouble getting to A than those that did a seed in the boom years.

But no matter the year, the small seed rounds have a lower probability of getting to A in under 2 years.

So what's happening here?

Maybe the companies that were raising small seeds were never planning on going to Series A (though given the general climate of startups in those years, I kinda doubt that). Maybe it's really hard to know how much money you'll need to get to the next milestone and undershooting is more costly than overshooting. Maybe a lot of things.

But for startups that want to go the full VC route, raising too little at seed seems to be a problem.

Interesting to see that the relationship between round size and graduation rate levels off pretty quickly. Rising the largest possible round does not give some major advantage.

I welcome spirited debate in the comments 😊

#cartadata #seed #SeriesA #startups #founders #fundraising