Why 90% of startups fail to secure series A?

Why 90% of startups with seed funding fail to secure series A?

No Matter the Industry, Nearly 90% Do Not Make It from Seed to Series A

Let's be brutally honest: Your startup is likely to fail. Nine out of ten do. That seed round might feel like a win, but it's a starting gun, not a finish line. You're staring down the barrel of Series A, and the odds are stacked against you.

Based on a cohort of 2,221 UK startups that raised their first investment between 2012 and 2016, our analysis of subsequent funding rounds reported in crunchbase shows that only 12% (260 companies) went on to raise a Series A.

Think you're different? Special? Most founders do. That's why they're part of the 90%.

So, let's get down to brass tacks. If you want a fighting chance, you need to address these five areas relentlessly:

1. Revenue 

Most Founders will answer YES to 1 and 2, but what matters is a formula that's proven to scale. If you pump money or people at one of the formula, the revenue end must scale. Now there is another level of complexity that we will not get in here which is the scaling is linear or non-linear. It is a no brainer that everyone loves non-linear growth. But to be practical a 10x linear growth pattern is good enough start.

Let’s take some examples.

Linear Example 1: Spending $1,000 on LinkedIn ads and generating $10,000 in revenue means that if the formula is correct, spending $10,000 should generate $100,000 in return.

Linear Example 2: If 5 sales team members generate $100k in revenue, then according to a scalable formula, adding more members to have a 50-person sales team should generate $1M.

Non-Linear Example 1: Spending $1k on LinkedIn ads and generating $10k in revenue (10x return). Spending $10k should generate $1M (100x return) proves that you moving towards non-Linear growth.

Non-Linear  Example 2: spending $1k on posting and blogging every month but the return keeps increasing month after month. 

2. Investors

• Are you connecting with Series A investors? 90% will say YES.
• Do you have a proven method to connect with them? 80% will say YES.

• Are you scaling and nurturing your relationships with these investors? 90% will say NO.

Unlike Revenue, this is not such an obvious YES for the first two questions.

Most Founders do not see a need to connect with Series A Investors when they have just finished raising Seed. 

We believe the 24 months journey from Seed to Series A is an extremely important pathway for addressing all of the above three questions in a concrete way.

3. Product

• Does your product solve a real problem? 100% will say YES.
• Do you have a proven method to build it? 90% will say YES.
• Can you demonstrate that your product can scale with growing revenue and customers? 90% will say NO.

Like Revenue, Most Founders will say a thumping YES to both first and second question. If their product do not solve a problem and if they have not found their problem solution fit , they might not have got their Seed in the first place. So the real challenger here is - Can they show proof that their product is able to scale when their revenue and customers are scaling. Once again, the world is proof.

4. Brand

• Does your brand resonate with your target audience? 90% will say YES.
• Do you have a proven method to create it? 80% will say YES.
• Can you demonstrate that your brand can scale effectively? 90% will say NO.

Once again the third question is key. It’s not just about having a brand that resonates initially, but whether you can magnify that resonance as you scale up with minimal marketing investment. Can your brand's essence and messaging uphold its integrity and appeal as it expands across different markets and demographics? This demands proof of concept through strategic scaling, rather than mere speculation.

5. Team

• Do you have an A-TEAM? 100% will say YES.
• Do you have a proven method to build it? 80% will say YES.
• Can you demonstrate that your A-Team can scale effectively? 90% will say No.

Team is the number one reason why startups fail to reach series A ( more than 50% ). All other reasons put together do not add up to 50%. It is also the most neglected one. Once again, the question here is how fast can you identify top talent and bring them on board. Scaling the team is sacrosanct to Series A.

The Hard Truth

There are no shortcuts. There are no magic formulas—just the relentless pursuit of excellence in every aspect of your business.

If you're not willing to put in the work, face the hard questions, and make the tough decisions, then join the 90%. Your startup won't be missed.

But if you're ready to fight, to hustle, to do whatever it takes, then maybe, just maybe, you'll be one of the few who make it to Series A.

The choice is yours.

FAQS

1: What Does Funding Mean in the Context of Series Funding for Startups?

In the realm of startup funding, the term funding mean refers to the capital a startup needs to develop its business. The initial round of funding is typically the seed round, which is part of seed funding is generally the first official money raised by a company. This stage is crucial for validating the business model and is often known as series seed funding. A company may then progress to the series a funding round, securing more substantial investments to fuel growth.

2: How Do Startups Raise Series Funding, Including C Funding Rounds, to Accelerate Growth?

To raise series funding, startups engage in multiple funding stages, such as Series A, B, and C funding rounds. Each round is usually led by different investors; for example, series a investors provide initial large-scale investments, which series a funding include capital from venture capital financing firms. This funding is essential for your startup to scale operations. As the startup needs additional resources, it may seek further investments in later rounds to continue its growth trajectory.

3: What Is Series Funding, and How Does It Impact a Startup's Ability to Secure Additional Funding in C Funding Rounds?

Series funding is a structured method of raising capital in successive stages, starting with the first series known as Series A. This stage is often referred to as known as series a financing and involves securing series a capital from investors. Series b funding usually follows, helping companies expand market reach. Series c funding is often aimed at scaling the business globally. Understanding funding after the seed stage is crucial, as it affects a startup's ability to obtain additional funding. Here's funding explained: each round enables the company to meet new milestones, making it more attractive to investors in subsequent rounds.

4: How Do C Funding Rounds Fit Into the Process When Startups Raise Series Funding?

C funding rounds are a critical part of the series funding process, allowing startups to participate in series investments that propel them to advanced growth stages. Companies that make it to series C have demonstrated significant success and use this funding is used to expand globally, develop new products, or enter new markets. Investors provide capital in exchange for a series of stock, meaning they acquire ownership stakes in the company in exchange for their investment. Resources like a guide to series funding can help your startup navigate these complex stages. Later rounds like series f may also occur, depending on the company's needs and opportunities.

5: How Do Startups Raise Series Funding, and What Does Funding Mean During C Funding Rounds?

Startups can raise series funding through various avenues, including traditional venture capital and equity crowdfunding, which allows the public to invest in exchange for equity. Funding with series rounds like series a financing or series B provides structured opportunities for investment as each round comes. These stages are also known as series funding rounds. During C funding rounds, the focus shifts to larger-scale investments aimed at significant scaling efforts. Series funding at this level is crucial for startups seeking substantial growth and market expansion.

6: What Is Series A Funding, and How Does It Differ From Seed Funding and Other Funding Rounds Like Series B Funding, Series C Funding, Series D Funding, and Series E Funding?

Series A funding is a critical funding round for a startup, following seed funding and preceding Series B funding. During this round of funding, venture capital firms and angel investors provide investment in exchange for equity in the company, often in the form of preferred stock. The valuation of a startup is crucial at this stage, as it determines the amount of equity funding and the ownership of the company that investors receive.

Seed funding is the earliest stage of funding and is generally used for product development and building a customer base. It's often sourced from angel investors or through crowdfunding and is also known as seed financing. As a company progresses, it may go on to raise Series B, C, D, and even Series E funding, each aimed at scaling operations to the next level. These later rounds often involve larger sums of money from venture capitalists and private equity firms to help grow the company.

7: How Can a Startup Seek Series A Funding and Start Series A Funding to Boost Its Growth?

To seek Series A funding, a startup founder needs to demonstrate a viable business model with significant growth potential. This involves preparing a solid business plan and showing traction in the market. To start Series A funding, companies often engage with venture capital firms, venture capitalists, or private equity investors who specialize in early-stage investments. Participation in startup accelerators can also help in seeking funding by providing mentorship and networking opportunities.

Securing Series A financing allows the company to scale your startup, develop new products, and expand its customer base. This type of equity-based financing is crucial for startups aiming to reach the next round of funding, such as Series B funding round or preparing for an initial public offering.

8: What Role Does Valuation Play in a Series A Round, and How Does Series A Financing Impact the Company's Financing?

The valuation of a startup during a Series A round is pivotal as it influences the amount of capital raised and the percentage of equity in the company that is exchanged for investment. A higher valuation allows the company to raise more funds while giving up less ownership. Series A financing impacts the company's financial structure by introducing institutional investors like venture capitalists and private equity firms who often acquire preferred stock sold during this round.

This influx of capital is used for product development, marketing, and expanding operations, helping the company reach the next level. It also sets the stage for future funding rounds, affecting how easily the company can raise funding in subsequent stages like Series B companies or Series C funding round.

9: Why Are There So Many Series in the Funding Process, and How Do Funding Rounds Work for a Startup?

There are many series in the funding process because each funding stage serves a specific purpose in a startup's growth trajectory. Funding rounds work by providing capital at different stages—starting from pre-seed funding and seed funding stage, moving through Series A, B, C, and sometimes up to Series G funding. Each round of financing is designed to meet particular milestones, whether it's entering new markets, product development, or scaling operations.

As companies progress, they require larger sums of money to achieve their goals. Later stages like Series D funding and Series E funding often involve investments from private equity firms, venture capitalists, and even investment banks. These funds are crucial for companies aiming for an initial public offering or expanding globally.

10: How Do Pre-Seed Funding and Seed Money Play Into the Early Stages of a Startup's Financing Journey?

Pre-seed funding and seed money are critical in the earliest stage of funding for a startup. Seed funding is the first official equity funding stage, often used to turn a business idea into a tangible product or service. It's generally sourced from angel investors, crowdfunding, or even friends and family, and is also known as seed financing.

This capital is typically used for initial product development, market research, and building a minimal viable product to attract further investment. Successful navigation through these early stages sets the foundation for future funding rounds, allowing startups to go on to raise Series A funding and beyond.