“A Round By Any Other Name Would Smell As Sweet”

** Update: I rec’d a lot of email/DMs on this one. My takeaway from this is there’s a mismatch of expectations when founders meet VCs. The founders may perceive they’ve raised Seed and are “going for A,” while VCs may perceive that same company to have already raised an A and, therefore, expect B-level metrics.

Monday night was a night on Twitter I did not expect. It’s easy to say that all the naming of rounds (seeds vs A vs ____) is semantic and tired — that’s true. What is interesting (to me), however, is the general knowledge gap between bigger institutional funds and the seed ecosystem at large. If you open this tweet and click through the various threads, the key lesson for me is that founders at the seed stage should be aware of how a larger VC firm will evaluate them based on the amount of money they’ve raised to date.

In particular, and this is just one person’s POV, but one of the largest, most public VCs said he viewed startups that took on around $3m or more in seed funding or notes had already raised their “A round.” Yes, semantics again, but founders are obsessed with these monikers, so everyone else is, too. A step further, for seeded companies that have raised this or more, a VC firm may benchmark that opportunity against other Series B deals they’ve done and/or are evaluating at that time.

This is all important today because (1) most people who aren’t on the inside don’t understand these goalposts; and (2) founders are operating in a climate where they can raise many rounds within a set of rolling closes of notes with caps. So, lamenting about what rounds are named misses the main point: Now that this knowledge has been made public, how will it impact how much founders raise, will it impact seed investors from continuing to invest in or bridge their companies? Whether or not $3m is the right benchmark, people are searching for guidance, and in the absence of perfect information or standardized milestones for companies to hit, a discussion like tonight’s helps shine a spotlight on companies who raise too much in the seed round.

It is not about the semantics. That may be obvious to some, but it’s great to have a leader in the world of VC just come out and say it so clearly. Not many people would.

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2018 Semil Shah.

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