Month: September 2018

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Seed Stage Startups Are Now Graded on a Curve

 

Over the past five years, we’ve witnessed an Atomization of the Seed Stage. Early fundraising is no longer a one-and-done fundraise of a single round of Seed capital subsequently followed by a Series A 12–18 months later.

Rather, it has been broken into bits of a series of capital raises to reach meaningful milestones… “pre-seed,” “post-seed,” and rounds in between have become the norm. A seed extension has ceased to be the equivalent of scarlet letter, and instead has become commonplace.

Whether or not this situation is good or bad for entrepreneurs and the ecosystem, it is indeed reality.

One of the results of this change is that Founders now approach Series A funds with increasingly varied histories.

The bar for Series A has moved

The flood of seed-funded companies coupled with proliferation of seed fundswilling to underwrite incremental capital into new and existing portfolio companies, has yielded a broad backlog set of “seed startups” with wild variations across the following three dimensions:

1. How much time has elapsed since company founding.

2. How much total capital has been put into the company since founding.

3. (Effective) post-money valuation.

Once upon a time there was a “bar” for Series A — a threshold, once crossed would yield a positive successful fundraise (e.g. $100K in MRR was cited).

https://bettereveryday.vc/seed-stage-startups-are-now-graded-on-a-curve-15a4968e8534

 

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Everything You Need to Know About Smart Contracts: A Beginner’s Guide

Introducing Smart Contracts and its features in an efficient way

Image Source — EngineerBabu

One of the most unique features of blockchain is its quality of acting as a decentralized which is shared between all the parties of the network thus, eliminating the involvement of middlemen or third-party intermediaries. This feature is particularly useful because it saves you from the chances of any process conflict and saves time too. Though Blockchains have their own set of issues that are yet to be resolved, they offer faster, cheaper and more efficient options as compared to the traditional systems. Due to this, even the banks and governmental organizations are turning to blockchains these days.

Smart contracts can be termed as the most utilized application of blockchain technology in the current times. The concept of smart contracts was introduced by Nick Szabo, a legal scholar, and cryptographer in the year 1994. He came to a conclusion that any decentralized ledger can be used as self-executable contracts which, later on, were termed as Smart Contracts. These digital contracts could be converted into codes and allowed to be run on a blockchain.

Though the idea of smart contracts came into existence long back, the current world that we live in works on paper-based contracts. Even if digital contracts are used, the involvement of a trusted third-party from the system cannot be eliminated. While we have defined a system of functioning with this method; we cannot say for sure if it is always smooth. The involvement of third-party might lead to security issues or fraudulent activities along with an increased transactional fee.

https://hackernoon.com/everything-you-need-to-know-about-smart-contracts-a-beginners-guide-c13cc138378a

 

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7 Common Mistakes Entrepreneurs Make in VC Pitches And How to Fix Them

With plenty of resources available for entrepreneurs about how to craft an effective pitch deck for raising seed-stage capital from VCs, often what’s left out are some of the tactical components of an initial meeting.

The following is a list of mistakes that, despite seeming obvious or perhaps mundane, are still frequently committed by founders and CEOs. The good news? They’re easy to fix.

Mistake #1: Not clearly articulating the basics in the beginning of a pitch.

Every single pitch should, but unfortunately often don’t, contain specific,

…..

https://bettereveryday.vc/7-common-mistakes-entrepreneurs-make-in-vc-pitches-how-to-fix-them-ee2d74e66884

 

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The Venture Capital Funnel

The Venture Capital Funnel Shows Odds Of Becoming A Unicorn Are About 1%

The venture capital funnel highlights the natural selection inherent in the venture capital process.

We followed a cohort of over 1,100 startups from the moment they raised their first seed investment to see what happens to them empirically.

So, once you take your first bit of seed funding, what can startup founders expect? The data bears out the conventional wisdom: nearly 67% of startups stall at some point in the VC process and fail to exit or raise follow-on funding.

In our latest analysis, we tracked over 1,100 tech companies that raised seed rounds in the US in 2008-2010. Less than half, or 48%, managed to raise a second round of funding. Every round sees fewer companies advance toward new infusions of capital and (hopefully) larger outcomes. Only 15% of our companies went on to raise a fourth round of funding, which typically corresponds to a Series C round.

The data below gives a more detailed look at the outcomes.

What we found:

  • There was a 2 percentage point increase from 46% to 48% in companies raising a first follow-on round in our updated analysis.
  • 30% of seed funded companies exited through an IPO or M&A, up by 2 percentage points from last year.
  • 67% of companies end up either dead, or become self-sustaining (maybe great for the company but not so great for investors). This was a 3 percentage point decrease since our last analysis. It is hard to know the exact breakdown for these companies as funding announcements get a significant amount of fanfare but cash flow positivity or profitability does not. Also, some companies stumble on as zombie companies for years before calling it quits. Not to mention, the death of companies generally happens without any official announcement, i.e. there is no such thing as a “startup death certificate” (although increasingly, startups are willing to share their failure post-mortems).
  • Not surprisingly the odds of becoming a unicorn remained low in our new analysis, hovering around 1% (1.07%), with 12 companies reaching that status. Some of these companies are the most-hyped tech companies of the decade, including Uber, Airbnb, Slack, Stripe, and Docker.
  • 13 companies exited for over $500M, including leading companies within their categories like Instagram, Zendesk, and Twilio.

Some other metrics:

  • While almost half (48%) of companies raise their first follow-on round, more than half (63%) of these companies went on to raise their second follow-on round which tends to be at the Series B stage. It is much easier to raise a Series B round, than a Series A round.
  • Average time to raise between months stayed fairly consistent across all the rounds, at about 20 months. At the 6th round the time to raise a follow on drops off by about 5 months, which is a small cohort of later-stage companies, but it shows that investors are a lot more eager to invest at this point.
  • The median seed disclosed deal size was $350K while the average was $670K, and the gap between median and average round sizes tends to increase over time, showing that mega-rounds in later stages skew the average upward. By the sixth follow-on round, the median round amount was $40M but the average was $120M.

Methodology:

  • This analysis contains a cohort of tech companies headquartered in the US that raised their first round of seed funding either in 2008, 2009, or 2010 and follows them through to August 31, 2018. Given the date range, these companies have had a substantial amount of time to obtain follow-on funding and exit.
  • Tranches are not counted as follow-on rounds, only equity rounds are counted as follow ons.
  • Of note, seed deals were on the whole less prominent in 2008-2010 than they are now. They’ve risen in popularity in the last few years with the explosion of micro VCs and the greater frequency of seed deals by multi-stage funds. If we were to repeat this analysis a few years from now, the numbers could look very different and there would likely even be a smaller proportion of companies obtaining Series A and Series B funding.

……

https://www.cbinsights.com/research/venture-capital-funnel-2/?utm_source=CB+Insights+Newsletter&utm_campaign=049fba35a6-ThursNL_09_06_2018&utm_medium=email&utm_term=0_9dc0513989-049fba35a6-87406845