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Seed Stage Founders: The Current Market for Series A Financings

Seed Stage Founders: The Current Market for Series A Financings

UNUSUAL
Portfolio
 MIN READ
John Vrionis
May 11, 2021
Editor's note: 

In a follow up to our most recent Unusual Field Guide Module, Understanding the Modern GTM for Early Stage Founders, I wanted to share a few thoughts for consideration on the current market for seed stage founders who are building towards raising Series A rounds.

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The Punch Line: Startups that have demonstrated a successful Modern GTM motion during the seed stage are extremely attractive to Series A investors and receive historically healthy valuations. Conversely, startups that are executing with the older GTM model and using BDRs + AEs as their primary sales motion are less attractive and, in the event they have not attained >$1M in ARR (Annual Recurring Revenue), are typically classified as “unfundable.”  

Optimal Position: The current ideal situation for Series A investors is a startup that has successfully demonstrated a Modern GTM AND has achieved revenue scale of >$1M of ARR. This is depicted in the diagram as the bright green box in the upper right quadrant and founders should expect the best valuations here. This translates into existence proof an effective Content -> Free Trial -> Sales Qualified Lead (SQLs) -> Paying Customer funnel that is growing month over month. Series A investors see these situations as rare opportunities and businesses that will potentially scale through the highly efficient execution motion that is the Modern GTM.  

A Close Second: For Series A investors, the second most desirable startup is one that has successfully demonstrated the Modern GTM. Founders can point to a rapidly growing funnel of free trial USERs (in the several thousands minimum) and resulting SQLs. Adoption levels and engagement metrics are growing rapidly month over month for the free product and there are early signs of revenue traction. ARR is less than $1M, but there is some data to suggest customers will pay for the solution and investors believe it is simply a matter of focus and headcount to ramp monetization.

Mildly Attractive: The lower right quadrant in our diagram represents the startup that has managed to surpass the $1M in ARR threshold during the seed stage, but has done so through a traditional marketing and sales outreach process. The GTM consists exclusively of utilizing Sales/Business Development Reps (BDRs) and Account Executives (AEs) to cold call customer prospects, drive a sales process, and close deals. Startups in this category, while considered fundable for some Series A investors, are not receiving the same valuations as startups in either of the top quadrants. The exception is a startup that has exceeded ~$3M in ARR as a seed stage company and has clearly demonstrated PMF and an economically efficient customer acquisition motion.

Pass: The lower left quadrant represents the unattractive or “unfundable” startup in today’s Series A market. During the seed stage, the founders of these businesses neither successfully executed on the Modern GTM, nor achieved greater than $1M in ARR. Founders in this situation are often forced to consider seed extension financings which will keep the startup in business, but are less desirable than a Series A alternative.

WRITE THE PRESS RELEASE FIRST

At Unusual, we are proponents of the Amazon approach to goal setting. We work closely with our seed stage founders during the fundraising process to align around the key goals to attain during this phase. The correct goals and successful execution puts the startup in the best position for the Series A fundraising process. As we’ve outlined in our Unusual Fundraising Guide we define seed stage goals along three dimensions: Team, Product, and Traction.

For a Founder building a Modern GTM startup and wanting to raise a Series A from the upper right quadrant in our diagram, everything starts with prioritizing the hires needed to successfully execute. World class engineers are a given, but the Modern GTM requires having top notch experts available in: Educational Content, Community Management, Design Partner recruitment, Product Marketing, and Product Led Growth. Nimble orchestration and execution of this team during the seed stage is what determines if a startup is an attractive Series A opportunity. For Founders building startups with the Modern GTM, we hope you will check out our tactical field guide modules for each of these areas that we will be releasing in the coming weeks.

LOOKING AHEAD

It turns out the same diagram—with a few tweaks— is applicable in today’s market to the Series B investor. More to come on this later, but here’s a sneak preview:


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