Series A Round Pyrrhic Victories
Will Price observes that too much money and too high a valuation in a Series A round financing may be counterproductive, stating:
"Ideal company formation reminds me of agile programming - small teams driving quick, iterative cycles that allow for the most insights, appropriate changes in strategy, and, ultimately, the highest quality "product"...
Too much money too early and too many people too early interferes with the productive process of iteration. Large teams with lots of resources and a very uncertain sense of direction or purpose are a bad combination...
An equally challenging problem is a too high "A" round post-money. High "A" round valuations are often Pyrrhic victories. High posts and middling execution often leaves a company in a grey zone whereby objective value-creating milestones have not been clearly met..."A" round financing strategies should be tied to discrete logic tests and proofs...Can we validate the technology and business model?...Will the product work? Will customers buy it? Can we sell it? If so, how? How much do we need, with a slight cushion, to answer these questions?...
A reasonable Series "A" raise and post-money valuation combined with realized value-creating milestones generally leaves a company in an enviable position when raising the Series "B". The key hypotheses have been validated and a reasonable mark-up is possible."
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