Why seed ‘extensions’ are becoming the new normal in fundraising
For years, many have believed the startup world would be doomed by the “Series A Crunch,” the natural result of an explosion of seed funding paired with an increasingly high bar required to earn a Series A. Industry observers believed we’d be witnessing a train wreck of epic proportions as companies died off. But the market has created a new product to solve the problem — the seed extension.
”シードファンディング”が資金調達の新常識になりつつあるわけとは。
長い年月、スタートアップ事業にはシリーズAの危機ｰシリーズAの費用を集めるのに必要となり非常に難しい障害、それと合わさったシードファンディングの拡大による当然の結末ｰが運命づけられていると信じられてきたのだ。産業のオブザーバーは会社が死に絶えていくのを大規模な単位での鉄道事故をとして目撃してきたと思っているのだ。だが市場はこの問題を解決するために、新製品”シードエクステンション”を作り出したのだ。
These differ from your classic seed. They tend to have new participants, unlike the more classic extension, which is merely the insiders injecting additional capital into the company. Some are quite large — say $2-3 million, often more than the original round being extended. Valuations tend to be flat or flat-ish. “Extension” can have many definitions these days, and many names (“Seed 2,” “Seed Prime,” “Seed to A”).
Despite increasingly high valuations at the late stage and a seemingly infinite number of venture funds, more and more of our companies are doing extensions.
Why do founders need lifelines?
The emergence of this new financing round is the result of a couple of phenomena. First is the sheer growth in the number of early stage/seed sector of funds. When Founder Collective started in 2009, there were a couple of institutional seed funds. Today there are hundreds. As a result, there’s a lot of early stage money chasing startups with valuations in the $5-12 million range.
創業者はなぜライフライン(頼みの綱）が必要なのでしょうか？
この新しい資金調達ラウンドは、いくつかの事象の結果ゆえ、起こっている。最初は資金の初期段階・シードのセクターの数が増加することだ。Founder Collectiveが2009年に始まった時、いくつかの組織化したシード資金があった。今日では数百ある。結果、500万から1200万ドルの見積もりの資金を、多くの新企業が追っている。
Second, the classic Series A and B shops are getting larger, many having billion-dollar funds. Unicorn hunting (or in some cases, “Pre-unicorn” hunting) has become critical to their standing in the LP community. Thus, many of these funds are willing to pay massive premiums for companies that evidence explosive growth and seem unwilling to take the risk associated with a promising seed-funded company that hasn’t quite nailed product/market fit. In a sense, there’s a bit of a barbell in the market today.
It’s really hard for them to invest in super-early companies that have serious warts when compared to companies that have real, and accelerating, metrics. The partner who brings in the “early A” deal has to make the case just like the partner who brings in the more mature company with a $5 million run rate. For these VCs, their time is a bigger bottleneck than capital.
ベンチャー企業に投資することは大変難しい。というのも実際の（そして上昇している）指標がある会社と比較して、深刻な短所を抱えているからだ。「早期のA」案件に取り組む共同出資者は、実行率5百万米ドルのより成熟した会社を扱う共同出資者と全く同じように対処しなければならないのだ。ベンチャーキャピタルにとって、時は資金よりも大きな障害なのである。
Is the seed extension the new Series A?
The other issue is that despite Bill Gurley’s warnings about burn rates, most seed companies aren’t actually burning that much money. A lot can be done today with a small team and $50,000 a month. So we’re seeing a lot of companies that took $1 million or less in their “seed” round coming back for a “classic” seed round of $2-3 million (amazing that this is now considered a classic seed, but anyway…).
シードエクステンションは新規のシリーズAなのか？
別の問題として、Bill Gurleyのバーンレートに関する忠告にもかかわらず、多くのシードカンパニーでは実際にそれほど資金を消費していない。最近では多くが小さなチームで行われ、月に50,000米ドルほどだ。
すなわち我々はシードラウンドで100万米ドル以下を選んだ多くの企業が、2～300万米ドルの古典的なシードラウンドに戻っているのを目の当たりにしているのだ。（驚くことに、今ではこれが古典的なシードとされているのだ。しかしまぁ。。。）
In many of these cases, the founder simply didn’t raise enough to hit the milestones they promised. Product development often takes twice what was anticipated, and many early stage companies simply didn’t have the capital to achieve what they hoped in advance of an A round. In the end, however, the entrepreneur benefits because they usually see a step up in valuation from the first to second seed.
This is also a bit of a semantic shift. The definition of seed funding has remained fairly stable. A rounds used to go to companies that had figured out the basics of their product but had some challenges with monetization, or vice versa. Today, A rounds are increasingly a sort of early growth capital.
これらのケースの多くの場合、創業者は単に、約束していた目標に到達するほど向上しなかったのだ。
製品開発はしばしば、予期されていたことの二倍がかかり、多くの初期段階の会社は単に、一勝負の前に望んでいたことを達成する資金がなかっただけなのである。しかしながら、結局企業家は、第一の種から第二の種へ評価をステップアップさせることをたいてい予測しているので、利益をあげるのである。
このことは幾分、意味の変化でもある。シード ファンディングの定義はきっちり揺るがないままである。自社製品の基本をおさえた会社にラウンズは行っていたが、マネタイズ化、もしくはその逆と競争することもあった。今日ではラウンズは益々初期成長キャピタルのようなものなのである。
This phenomenon is nothing more to me than the sign of a growing and increasingly competitive market. With pre-seed funds, and follow-on funds, and Seed-A funds, startup funding has been chopped into lots of pieces. In the end, though, they present more funding options, which is great news for the entrepreneur. There is a certain stigma associated with seed extensions, but they’re quickly becoming the new normal, so I expect that will fade over time.
So given this dynamic in the early stage funding marketplace, and the fact that we have funded over 200 seed stage companies, here’s how I coach our companies beginning the “should we go for an extension or shoot for a series A” process:
Go see a few Series A funds — get a few datapoints, but not too many. It’s helpful to get a pulse check on the market. Try to identify warm targets — those investors who already know the company and may have expressed an interest in the past. After meetings and follow-ups with half a dozen or so, it will be clear if the Series A is looking to be a long slog or a straight shot.
If the feedback is consistent, I often retrench with the companies and decide whether it’s worth the dozens of pitches required to close a round or whether going back to the seed community for a quick close makes more sense. In some cases, I’ve even seen the Series A/B guys become interested in participating in the extension (though that can bring signaling risk).
