A Product Market Fit Show | Startup Podcast for Founders
00:08:09 · Pablo Srugo, Peter Walker
[00:08:09] S1: So the series a is the part of the market that is most interesting to me right now because it's changed so much. Just to to get a handle on the data, like, two, three years ago, five years ago, like, what's been the trend of series a sizes and series a valuations? My mind remembers them being, like, very different. [00:08:23] S0: Yeah. They're almost doubled. Like, if the valuations have gone up at least on a median basis, not just even the the high flyers, have gone up almost two x over the last, call it, three years. So that's a massive difference. The amount raised you know, it used to be that the amount raised was maybe more like 8 to $10,000,000 in a series a, and now it's much more, call it, 13 to 15. So that's a 50% increase in the capital. I agree with you. It's kind of the most interesting part of venture because it hasn't grown as much as the seed rounds, but it's also the part that, as a seed manager, I'm always wondering, how are they justifying the pro rata or follow ons into these series a's if it's gonna cost another $3.04, $56,000,000? It's very expensive, and you haven't really learned that much. It's still a series a company. Like, I know they're growing fast, but it kinda feels like everybody's growing fast. So where's the defensibility? I I struggle. Some of these numbers, like, shock me still. [00:09:17] S1: Is that the seed valuation you're saying also doubled or more than doubled in the last three years?
00:09:17 · Pablo Srugo, Peter Walker
[00:09:17] S1: Is that the seed valuation you're saying also doubled or more than doubled in the last three years? [00:09:21] S0: Yeah. The seed valuations are actually going up higher. Series a saw a really significant decline or at least a decent one, substantial one from the old 2021 marks. Seed really didn't. I don't know, man. Maybe this is maybe all the stages are getting kinda silly, we should just break it up by how much did you raise. I'm actually experimenting with a lot more charts about how much did you raise versus what stage were you in because I think the dilution tends to map out to close to the same if you just do it on a fundamental capital raise basis versus a stage name basis. And maybe we just get rid of the stage names altogether because they're confusing. But in aggregate, I think series a is the place that I would be most cautious about investing right now because the money is really high, and these are still very young, very, very unproven businesses.
00:10:05 · Pablo Srugo
[00:10:05] S1: It's funny. Series a has gone to me as being, like, the most the best place to invest to not the worst, but, like, a very risky place to invest today, because it used to be, and now we're going way back, but I remember series A's, let's say, eight years ago at seven on 30 sort of thing, these kind of things. And and then you're like, okay, well the business went from not having product market fit to clearly having product market fit, from having no ARR to having $12,000,000 ARR. There's a big shift in the risk you're taking, and you still position yourself with good ownership even in a 100 multi $100,000,000 type exit. Now it's like some of these, you know, these series a's meeting series a coming in at post of 80, and I'm doing the math on that. I'm like, you think every series a you do has to be like a $5,000,000,000 outcome, you know, net of dilution, I think, to make it make sense. Because at a billion, that's a 10 x without dilution using 50% dilution to exit even from the a. Now you got like a five x. Like, that's not worth the risk of investing in series a. So the mindset of what an exit has to be must have and I don't know if people are doing this math or not doing this math, but, like, implicitly, this is kind of what's going on.
00:11:12 · Peter Walker, Pablo Srugo
[00:11:12] S0: I hope they're doing this math. It's not, like, that complicated. I I'm with you that I think the number one thing that's changed in venture over the last, call it, two years is a radical upsizing in what potential exits could be. And, like, how can you argue with that given what SpaceX and then dropping OpenAI are gonna do? I think it's fair. The question is how many companies can get to that level? Because you're right to say that getting to a billion dollars, if you're investing at this kind of series a, it doesn't even come close to returning the fund. You know, unicorns are not the vibe anymore. It's decacorns plus. [00:11:45] S1: That's why I mean, what I'm telling founders is it used to be good enough you get to an a, and you gotta pitch this path to a billion, pitch this path to a 100,000,000 ARR. Like, it's just not enough. I mean, you have to you have to go in at series a with a couple, you know, two, three million. I think the meeting's, three and half million of ARR or whatever. And you gotta pitch a story of half a billion, if not a billion, of ARR for you to be interesting enough to some of these guys. [00:12:06] S0: Yes. Exactly. And I think it pushes founders to do that. You know? Like, they're the the climate is to keep pushing, keep pushing, keep pushing. Maybe that's gonna leave a lot of, you know, stranded startups along the way.
00:12:06 · Peter Walker, Pablo Srugo
[00:12:06] S0: Yes. Exactly. And I think it pushes founders to do that. You know? Like, they're the the climate is to keep pushing, keep pushing, keep pushing. Maybe that's gonna leave a lot of, you know, stranded startups along the way. [00:12:18] S1: Yeah. I mean, this is the key question. And it's a feature, you know, of ventures that when there's a big opportunity like there is with AI, everybody just pees on the cast pedal, and some people really get there in a massive way, and a lot of people are left to die versus some kind of in between situation where you don't get these insane home runs, but a lot of more companies kind of make it or something like that. Right? It's just Venture's, like, not optimized for that at all. [00:12:38] S0: No. It's the exact opposite. And maybe that's I can't tell if that's better or worse for, like, society at large. [00:12:44] S1: That's a deeper question. [00:12:45] S0: Yeah. Exactly. I think it's worse for individual investors. I think it might be better for America. I'm not sure. I could be convinced of either side of that. [00:12:52] S1: What else are you seeing in in the data? Like, what what else struck you in q one?
00:12:52 · Pablo Srugo, Peter Walker
[00:12:52] S1: What else are you seeing in in the data? Like, what what else struck you in q one? [00:12:56] S0: The concentration within not just a theme, which is AI, but then the infrastructure versus application layer has become two completely separate markets. And the second one is just the concentration and location. I mean, the Bay is a gravity magnet for talent, for founders, for high valuations, for capital. All the stuff that we talk about, the $500,000,000 post money seed rounds, they don't exist anywhere else. 90% of them are in the Bay Area. So it's like this, you know, agglomeration of this little, like, amoeba that just keeps growing and growing and growing in San Francisco. And everywhere else has to either play that game or decide not to play that game. I mean, I think that there's I think there's a lot of opportunity outside of the Bay right now that just isn't getting the level of attention that probably it deserves. [00:13:45] S1: Do you have a sense of, like, the median seed or a valuations if you just strip out, like, the Bay Area from the dataset? [00:13:52] S0: Yeah. That I mean, they're 30% lower. Like, you know, the median series a in The Bay right now is 85,000,000 post money. The median in Austin is probably more like 65. [00:14:02] S1: Okay.