A Product Market Fit Show | Startup Podcast for Founders
00:14:02 · Pablo Srugo, Peter Walker
[00:14:02] S1: Okay. [00:14:02] S0: Median in DC, probably more like 60 and on down the line. So The Bay is a completely different beast. Like, it just it functions in different ways. And The Bay is probably at least a quarter, if not close to a third of all series a's. So it's higher, and there's far more of them, which is it's kinda weird. You would expect maybe the the opposite, but it is the center of things right now. [00:14:23] S1: But that means also for seed, like, the median is 20, the the median out if you're not in the Bay Area, your median is probably, like, 15. That's more realistic in terms of target. Yep. It's wild to see, like, all the remote, all the, like, venture going different places, everybody getting super excited about building ecosystems, and none of it none of it really shows up. None of it really matters. [00:14:43] S0: It didn't stick at all. And it makes me wonder, like, what's the right advice to to founders in terms of should they move? Should they care? All that kind of stuff. My instinct is to say they shouldn't unless they absolutely have to or really, really, really want to. But I could be wrong. I could be you know, there is such a thing as the ecosystem sort of defining the limits of [00:15:03] S1: your [00:15:03] S0: ambition. And certainly, there's a lot of ambition in The Bay. Although there's a lot of play acting and ambition here too. It's not a perfect place.
00:15:03 · Peter Walker, Pablo Srugo
[00:15:03] S0: ambition. And certainly, there's a lot of ambition in The Bay. Although there's a lot of play acting and ambition here too. It's not a perfect place. [00:15:11] S1: Well, mean, the the question and I don't know how how this could or could not show up in the data, but, you know, can you get the benefits of The Bay without being in The Bay? Like, can you go to The Bay every quarter or every six months or just enough that you're kind of there without really having to relocate there and you build a little bit of a network? I've seen this happen, but it's kind of these one offs. So I don't know if this is a true story, but it's like a person from Toronto building a real business. Okay, time to fundraise. Cool, I'm going to the Bay Area for a month. My numbers are great. People are gonna take the meeting, and I'm gonna get more or less the Bay Area evaluation as a result because I'm gonna build the same kind of FOMO, the same sort of process. And that works maybe at the ninetieth percentile of what you might get if you were, like, in The Bay and get a 100% of it. But you don't have to be there. [00:15:49] S0: I think it's a great strategy. I think that more founders I don't think you should move, but I do think you should visit is the way that I've been telling founders lately. [00:15:57] S1: Yes. And then the other thing I wanna touch on is the graduation rate. We talked about the series a especially. Like, how is that trending from c to a, and what does it take you know, what are you seeing in the data in terms of what it takes to raise an a? Who's getting it?
00:15:57 · Pablo Srugo, Peter Walker
[00:15:57] S1: Yes. And then the other thing I wanna touch on is the graduation rate. We talked about the series a especially. Like, how is that trending from c to a, and what does it take you know, what are you seeing in the data in terms of what it takes to raise an a? Who's getting it? [00:16:11] S0: I mean, it's getting a little bit better, so that's good. There are more companies graduating from recent cohorts. If you look at, like right. We're sitting here. It's it's, call it, the end of q one, beginning of q two, twenty twenty six. You've got the companies that raised about a year ago. So q one of twenty twenty five or so. How many of them have gotten to series a so far? It's something like 10 to 11%, which in a year is actually pretty good. It's much better than it was in 2022 or '23 where it was down to, like, four or 5%. [00:16:40] S1: Wow. [00:16:40] S0: It's not where we were back in 2021. So the frenzy isn't quite there, And that's because the other half of your question, there's just a concentration where higher valuations, more capital, but fewer companies. And that's happening at stage after stage after stage. So it takes a lot to get to series a. It takes way more than it used to. The growth rates are higher. The competition is higher. The expectations from investors are higher, and that will definitely push people out along the way. We can talk about what those, like, stranded seed companies do. But in general, I think the bar for series a is something like two x what it was a couple years ago.
00:16:40 · Peter Walker, Pablo Srugo
[00:16:40] S0: It's not where we were back in 2021. So the frenzy isn't quite there, And that's because the other half of your question, there's just a concentration where higher valuations, more capital, but fewer companies. And that's happening at stage after stage after stage. So it takes a lot to get to series a. It takes way more than it used to. The growth rates are higher. The competition is higher. The expectations from investors are higher, and that will definitely push people out along the way. We can talk about what those, like, stranded seed companies do. But in general, I think the bar for series a is something like two x what it was a couple years ago. [00:17:17] S1: It's what, like, the median, I think, from from SVB is, like, 3 and a half million ARRs. Is about right? Yep. It used to be. Again, like, you know, you go back. The 7,000,000 a's I'm talking about, you needed a [00:17:25] S0: million ARR for. So A million dollars. Right. Exactly. That was always the benchmark. [00:17:29] S1: So it really is like the tripling. I mean, now you get more a bit more than twice the money and you need, you know, more than twice ARR. [00:17:35] S0: Then there's this toward, you know, those AI infrastructure companies might be earning $0. They're raising hundreds of millions because they're they haven't, you know, come out with their new world model yet or whatever it is. It's it's very weird. It's a weird time.
00:17:47 · Pablo Srugo
[00:17:47] S1: Ugh. You're such a selfish person. I actually can't believe how selfish you are because, like, you've been listening to the show. You listened to this episode. You loved it. You've listened to a bunch of other episodes, and you haven't told anyone about it, you haven't told any of the many founder friends that you have about it, think about how many founders have helped you out when you're building your startup. So don't be selfish. Tell your friends about this episode, tell them about the show, and help me help them. Those are I mean, yeah, those are almost have to, like you said, like, have to be treated completely differently because I and I they just don't apply, I think, for for most like, unless you're in that world, most founders are not building those sorts sorts of businesses. And and so they suffer from you one of the things that I'm seeing mainly even growth is not the same as it used to be in the sense that, like, growth alone isn't even enough now, like, terms of that bar for series a. Not only do you need, like, three and half million of ARR, not only do you need to have gone there very fast, you also need to have a reason for why you can compete for why, like, not everybody else is gonna do this because now everybody can build product, everybody's moving super fast. Like, what do you have that others don't? And in a sense, the AI infra ones, they don't suffer from that in the same way. There's something about the DNA that from the get go is supposed to make them differentiated. So it's part of that origin story. Whereas a lot of these AI apps, it's like, yeah, I'm gonna solve this problem for this. Oh my god, it's working. Oh my god, I'm growing so fast. And And now I gotta figure out how come, you know, 10 other founders aren't gonna eat my lunch and, like, you know, tell this story so I can raise a series a.
00:19:11 · Peter Walker
[00:19:11] S0: What's the story that you hear from founders that how bad they can do that? Because I don't I'm with you. Think the defensibility has never been lower.