May 8, 2024

229. Seed Crust: Year of the Bridge

229. Seed Crust: Year of the Bridge
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Season 4

Text your thoughts directly to Rich.

Peter Walker dubbed 2023 "The Year of the Bridge Round." In many cases, the founders did what they set out to do, it's just that the bar for Series A moved.


Seed Crust: State of the Seed Market 1H 2024
Most startups at Seed are circling around, unable to break through to Series A. We're calling this the Seed Crust. I recently released a market report covering: 

  • The market forces behind this
  • What it will take for this to change
  • The paths forward for founders stuck

Download the report and watch the event here: https://vcminute.substack.com/p/seed-crust 


About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast - get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

About SpringTime Ventures
SpringTime Ventures seeds high-growth startups in healthcare, fintech & insurtech, and logistics & supply chain. We look for founders with domain expertise, forging a path with a truly transformative technology. We only invest in software-based businesses in the USA. We bring a people-focused approach, work quickly, and reach conviction independently. Our initial check size is $600k. You can learn more about us and our approach.     

Transcript
WEBVTT

00:00:01.000 --> 00:00:03.879
This leads us to that inside rounds are on the rise.

00:00:04.480 --> 00:00:06.639
You called 2023 the year of the bridge round.

00:00:07.169 --> 00:00:17.917
If you listen to the VC Minute, you know, I say, never say"bridge" because an investor can no more think about a bridge to nowhere than you can not think about a pink elephant, when I say don't think about pink elephants.

00:00:18.358 --> 00:00:26.867
You always want to call it an insider round, an extension round, your Seed 2, your Seed Plus, whatever you want to call it, but it's all the same, and this is up way across the board.

00:00:27.478 --> 00:00:34.307
What's happening here is that startups are coming back to their investors and saying, Oh, we're so close, so close.

00:00:34.747 --> 00:00:38.948
We just need another million, another 2 million, get us to the next level.

00:00:38.957 --> 00:00:40.618
And that next level, then we'll break through.

00:00:41.412 --> 00:00:50.972
Other thing that's happening is that, you know, you raised your seed round and you were a good founder, so you looked ahead and you said, okay, here are the metrics I'm going to need to hit to get to A.

00:00:51.552 --> 00:00:58.073
And then you came back a year and a half later, and you realized all the A investors had completely changed the metrics that you needed to get to A.

00:00:58.453 --> 00:01:08.742
So then you go back to those original seed round investors and say, look, I hit my plan, but that plan was wrong because it didn't take into account the growth in the underlying metrics that we're going to need to hit.

00:01:09.112 --> 00:01:14.843
And that, it feels as though underneath these founders, the ground is shifting because it is.

00:01:15.843 --> 00:01:18.423
Do you see that the rounds are smaller now,?

00:01:18.423 --> 00:01:20.462
It's not about the valuation, but the dollars?

00:01:20.777 --> 00:01:23.697
In the primary seed rounds, no.

00:01:23.986 --> 00:01:27.516
The median on Carta was like 3, 3 and a half million for a primary Seed.

00:01:28.016 --> 00:01:39.156
But bridge rounds, Yes, so Bridges, or excuse me, Seed Plus, Seed Extensions, but those are, those typically go off at, call it a million bucks, maybe a little bit more.

00:01:39.719 --> 00:01:42.250
This is actually another great example of the barbell effect.

00:01:42.430 --> 00:01:49.385
There's a lot of extensions that are given to companies who are just trying to hit the next round and trying to get to the right metrics.

00:01:49.959 --> 00:01:57.935
And then there are some extensions which muddy the data where the VC is so excited about that PortCo that they're trying to preempt the A before they get there.

00:01:58.415 --> 00:02:02.778
Both of those things are happening and it makes it a little bit of a weird picture.

00:02:03.355 --> 00:02:06.697
In general, round sizes have remained pretty robust.

00:02:06.697 --> 00:02:08.508
It's just fewer companies are getting those rounds.