Series A Zombies

Every day, I meet entrepreneurs who are struggling to raise their first real round of funding.  Series A money (or the lack of it) seems to be standard fare conversation among entrepreneurs located in any city outside Silicon Valley.

As well it should be.  Because it doesn't matter how good your computer science programs are, or how robust your seed stage investment ecosystem is - if there are no Series A investors in your city, your entrepreneurs are, 99% of the time, either going to get stuck inside a "pretend" Series A round, or lose their shirts.

Why do I say "pretend Series A" round?  Because that's what many Series A rounds are, outside the Valley - they are simply follow-on angel rounds, married to a Series A press release.  They are not real Series A rounds, more like a seed-stage top-up.

Consider what you get in a real Series A round, underwritten by a large Valley firm: enough money to scale your development team so you can create a decent product in months instead of years, QA resources so the product is excellent, design resources so it's usable, trainers and managers and marketers (and marketing dollars) so the sales team can make money, and enough air for executives to last the 18 months they'll need to show traction and get to the B round.

Think about it: the only advantages a startup can ever utilize are both time-based: either you have developed a patent and have 17 years to execute against it, or you possess speed and resources sufficient to get your idea to market ahead of the people who thought of the idea a millisecond after you.

Sometimes small teams are so aligned, and so crazy good (the original Mac and Google and Twitter teams, the insanely brilliant Instagram engineers) that they are able to create astonishing products with very few resources.  

But in my experience, most products require significant amounts of resources to even get to a point of viability, and more again to start generating visible trend lines inside revenue graphs.

The guys a few miles from San Jose get this - and write large checks to companies for this reason.  But outside the Valley, what you usually see happening instead during Series A rounds is a slight step-up in capital from the seed money - not enough to hire well, fire often, and build and sell great product.  You can't scale, and you're facing a short, sometimes impossible runway, and a non-existent Series B.

Too small to enable the entrepreneur to make fundamental progress, these rounds instead provide just enough capital to braid a noose. You've been given enough not to fail, but not enough to succeed. You are, in short, a Zombie Series A Company - a Series A in name only.  You're not going to die, but you're not going to get to your Series B.  

It's time for a change.  Time for a rethink and a re-imagining of capital allocations and government programs so that non-Valley companies can access Series A capital in adequate amounts and become world-class start-ups - and step up to their Series B or later rounds with guns blazing and truly supportable higher valuations.

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John Sharp

John is a serial entrepreneur and investor, and the co-founding Partner of Hatcher+, a data-driven, globally-focused venture investment platform based in Singapore. In addition to leading capital raising and deal syndication, he is the visionary and architect behind the Hatcher Stack, the company's proprietary research and technology platform. Over the past five years, John has led numerous venture investments in early-stage companies, including ASYX, DocDoc, Dropsuite, Heardable, Invit, Inzen Studio, SocialCops, ThoughtRiver, and Telr - and syndicated over US$100Mn of additional debt and equity co-investment. IPOs and trade sales in which he was acted for the majority shareholder include Dropsuite (ASX:DSE) and Inzen Studio (ASX:ICI). His M&A work includes the merger of payment leader Telr with Dubai-based Innovate Payments, and the merger of Singapore-based companies DocDoc, and DoctorPage. Prior to co-founding Hatcher, John founded cybersecurity technology leader Authentium (acquired by CYREN in 2010), and acted as a director for global payments aggregator Mozido, and an advisor to Africa-based Gateway Communications, satellite technology developer MDS America, Kuwait-based Internet marketplace Sheeel.com, and Orion Partners, a $2B private equity fund manager based in Hong Kong.

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