Update on startups getting from seed to Series A - it's still hard!
Percentages in the chart are cumulative for a single cohort of seed startups. So you read across each row. Take the top row—of the 272 startups that raised their seed rounds in Q1 2018, 38% had made it to Series A in 12 quarters (or 3 years).
Basic Takeaway: a much higher share of seed startups made it to A within 2 years in the boom times than are making it in more recent cohorts.
Now I think those graduation rates for the 2020 cohorts are inflated and maybe even unhealthy. But even compared to slightly more normal periods like 2018, the most recent data is lagging.
Does this matter?
𝗜𝘁 𝗱𝗲𝗳𝗶𝗻𝗶𝘁𝗲𝗹𝘆 𝗺𝗮𝘁𝘁𝗲𝗿𝘀 𝗳𝗼𝗿 𝗩𝗖𝘀. 𝗜𝘁 𝗺𝗮𝘆𝗯𝗲 𝗺𝗮𝘁𝘁𝗲𝗿𝘀 𝗳𝗼𝗿 𝗳𝗼𝘂𝗻𝗱𝗲𝗿𝘀.
Venture is a very long-term game. Funds are usually expected to last 10 years, with full distributions perhaps not coming for 15 years from inception.
So how can limited partners (the people who give the VCs the cash to invest in the first place) judge their managers in the decade before they start giving back cash?
One way is by using "markup rate" or the percentage of a fund's portfolio that gets a new, higher valuation assigned to them by an outside fund. Graduation rate = the baseline markup rate for a set of companies.
So if you're planning as a founder on taking one venture round and then growing without outside capital, that's awesome! Just be sure to let your VC know :)
If different parties in the venture stack are operating under different assumptions in regards to timelines, things can get messy fast.
FWIW, recent cohorts have seen higher rates of bridge rounds - but historical companies who have raised a bridge are less likely to get to the following primary round. Maybe today is different given the macro pressure, too early to call that.
As usual, being a founder is no joke. Salute to all of you who do it anyway 🙏
#startups #seed #SeriesA #venturecapital #founders
Full dive into graduation rates out later this month - subscribe at the link in graphic to get a copy of the report for yourself.
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