Opportunities lost in a sea of growth rounds

These days in startup land we see an enormous number of startups being seed financed by angel investors, seed funds, venture capitalists, hedge funds and celebrities.

This trend has been happening for many years now and has simply continued. More seed capital isn’t necessarily a bad thing and generally I’m happy about that. The alternative is problematic.

The more recent thing is the rise of growth rounds. In 2014 our industry saw more growth rounds than the actual number of business days.

The interim stage between the seed round and the growth round is happening at an accelerated and compressed pace.

Consider the Tumblr financing history.

Year 1: $700k
Year 2: $4M 
Year 3: $4M 
Year 5: $25MM 
Year 6: $75M

Take a look at the first three years. That financing history is rare these days for a promising company. In fact those first three years of financing history would look like a messed up company in today’s environment.

Today it would look more like this for a promising company.

Year 1: $4MM 
6 to 12 months later: $25-$50MM

The difference is dramatic.

Yes it means a Series A crunch for many startups. It also means more dilution and higher expectations.

But the thing I’m most concerned about are the startups that won’t get their next round done just because they aren’t on a rocket ship.

Some companies take time and patience. And I do worry we aren’t valuing or appreciating those startups well enough in this environment. It would be a mistake to overlook them and a loss for our industry.