How Fast You Go From Seed to Series A Actually Matters

Sorry founders - how fast you go from Seed to Series A does matter.

Data below shows the average "graduation rate" from Seed to Series A from the date of the seed round.

About 10% make the jump in under 12 months. From 12-24 months, another 15.6% make the leap.

But by the time the end of Year 3 rolls around, effectively 80% of startups that will ever graduate have already done so.

Okay, cool - but why does this matter at all?

𝗢𝗻𝗲 𝗼𝗳 𝘁𝗵𝗲 𝗽𝗿𝗶𝗺𝗮𝗿𝘆 𝗿𝗲𝗮𝘀𝗼𝗻𝘀 𝗶𝘀 𝗺𝗮𝘁𝘁𝗲𝗿 𝗶𝘀 𝘁𝗵𝗶𝘀 𝗴𝗿𝗮𝗱𝘂𝗮𝘁𝗶𝗼𝗻 𝗿𝗮𝘁𝗲 𝗶𝘀 𝗮 𝗸𝗲𝘆 𝗺𝗲𝘁𝗿𝗶𝗰 𝗼𝗻 𝘄𝗵𝗶𝗰𝗵 𝗳𝘂𝗻𝗱 𝗺𝗮𝗻𝗮𝗴𝗲𝗿𝘀 𝗮𝗿𝗲 𝗷𝘂𝗱𝗴𝗲𝗱 𝗯𝘆 𝗟𝗣𝘀.

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 yes, founders, you're right that investors 𝘀𝗵𝗼𝘂𝗹𝗱 get that companies can wander sometimes and that raising the next round ASAP isn't always the best move. But understand the incentives from the investors' perspective as well.

If different parties in the venture stack are operating under different assumptions in regards to timelines, things can get messy fast.

Last note - planning to just "raise a bridge" is not a good plan! Bridges, extensions, etc should be avoided whenever possible. Sometimes it's not possible, I get it.

Good luck, potential graduates 🙏