There is No Series A “No Man’s Land”

Number of Financings decreases with a Power Law dependence on round size. Data set: Crunchbase, equity rounds for US-based companies in 2015 and 2016.

I was talking with a startup CEO about sizing their upcoming Series A fundraise. We had a discussion about the perceived dearth of venture capital financings between the “large Series Seed” and the “small Series A”, and whether or not it then made sense to target raising more or less than the otherwise ideal amount, so as to avoid that “no man’s land” in the middle. To inform the discussion with something a bit better than anecdotal evidence, I pulled some data from Crunchbase. As we can see from the plot above, the number of financings falls off sharply as the size of the round increases. The data points are reasonably well fit by a power law curve (solid black line). Exceptions are deal counts at the “round number” financings of $5M, $10M, $15M, and $20M. I suspect these larger “round number” deal counts are a combination of the self-reported nature of the Crunchbase numbers and the natural inclination of investors and executives to reach round numbers.

As one would expect, the data confirms the dramatic reduction in the number of rounds that happen as round size grows. But, it does not show region of reduced deal counts that might be consistent with a “no man’s land” between a large Series Seed and a small Series A.

It is also relevant to look at the total amount of money raised in each of the $1M wide bins. Each point in the plot below is equal to the count from the corresponding point in the plot above multiplied by the average round size in that bin. The “round number” financings represent noticeably larger amounts of total investment than the adjacent bins.

Total Amount of Financings is relatively flat as a funding of round size. Exceptions are the “round number” financings at $5M, $10M, $15M & $20M. Each point represents the total amount of the fundings that happened in 2015 & 2016 at this size.

And, if we take the data in the plot above and plot in a cumulative manner, we can see in the plot below, the total amount of capital raised decreases only slightly with increasing round sizes. These plots do not suggest any specific region of lack of rounds getting done.

Cumulative Total Amount of Financings shows a fairly linear dependence on round size.

Most important take aways:

1. There really isn’t a material gap in any part of the fundraising round size for the range that is relevant to a Series A financing. So, you should target the amount of money your startup actually needs, not what some well meaning advisor tells you need to raise.
2. Of course there are fewer financings as you look at larger round sizes. This is another reason not to talk yourself into raising a larger round of funding than you actually need.

The details:

• All data is from Crunchbase, for rounds announced in calendar years 2015 and 2016. Much older than that starts to be of questionable current relevance.
• Only financings for US based startups were included. Round types that aren’t equity-like (grants, non-convertible debt, etc.) were excluded.
• When multiple rounds were announced within a 3 month period, I combined them as a single “round” for this study. This had minor impact on the smallest bins, and immaterial impact on the larger bins.
• Within the $0 to $1M bin, 1106 of the 5136 deals were below $100K, and these accounted for only $43M of the $1.8B total. These very small rounds may be systemically missing from Crunchbase, but the total missing rounds are unlikely to be material to this analysis.