Series A Post COVID: 3 Takeaways Startups looking for Capital Need to Know

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Raising Series A post COVID or raising any money during the pandemic seems like it might be a big challenge. In the past few months, I worked with ambitious entrepreneurs founding high potential B2B SaaS startups during a very volatile period in the global economy. These startups are at a very early stage: they published an MVP, signed a few initial customers and need to raise a Seed round.

As part of my work, I’ve been researching the state of the VC market and how getting series A funding post COVID has changed. I felt that the VC deal flows would drop. But the picture is more complicated. Here are the top 3 takeaways from my research.

What Pandemic? Elite Companies Are Raising more Seed & Series A POst COVID than Ever

Seed Rounds Valuations have doubled in 10 years: In 2010, companies raised $1.3 million before Series A on average, compared to $5.6M in 2019. Importantly, there’s no evidence of a crash of Seed Round valuations during COVID:

  • In the Bay Area, I counted 97 Seed Rounds on Crunchbase as of this writing (not including Y Combinator). The Median Seed Round was $3M.
  • In Paris, a small Tech cluster compared to SF, 10 Seed rounds of over 3M€ were raised in the past 90 days according to Crunchbase.
  • In ASEAN, 8 Seed Rounds over $2M were raised in the past 90 days.

Series A Valuations almost tripled in 10 years: In 2010, average Series A was $5.1M. In the United States, average Series A in 2019 reached $15.7 million, and, as a post-Covid point of comparison, in the past 90 days (summer months) average Series A posted on Crunchbase was $13M. We are still in historically high value territory.

VCs are Investing More Seed into Fewer Companies

Total Angel and Seed deals decreased 44% QoQ (from 3,240 in Q1 to 1,791 in Q2) globally. This drop would, from afar, seem to mean that investments are crashing. However, the amount invested decreased by only 18% QoQ (from $2.8B to $2.3B). Q2 2020 has seen a lot more money for the highest potential.

raising series A post covid

During COVID, I heard a few business executives explain to me that VCs were maintaining investment levels only to protect companies already in their portfolio. However, Seed rounds are invested in startups that were not previously in a VC’s portfolio. Theory says VCs are playing Defense. Yet, it would seem that this is not the case.

Also, most of the world was not meeting in person over coffee. Work From Home is an additional friction for a great talking, deck selling WeWork-founder-type dreamer. Hard numbers work better when selling through Zoom. Q2 2019 saw average Seed & Angel round size of $1.3M, same as Q2 2020 when the world was locked down.

Getting to Series A Post COVID means you actually need to have customers. 

Companies Need Customers for Series A Post COVID

While the Seed figures are higher, now getting to Series A is much harder for companies: you actually need to have customers. In 2010, 15 percent of companies raising Series A had revenue. In 2018, 85 percent had revenue. Based on a non-scientific survey of my network over the summer 2020, I’ve yet to find a company that is looking for Series A without revenue. Companies could go from Seed to pitching Series B before having to prove revenue traction to outside investors. This era is over for the vast majority, if not all, SaaS startups. Sales momentum starts much earlier in the process, which acts as a filter between great concepts and real products.

To conclude, times are great for best of breed startups and awful for everyone else. Next week, I’ll discuss how to be identified as the best of breed.

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