It’s interesting to see how the funding process is changing (especially by the new start-up accelerators). This is a pertinent sentence to this article:
“The new pattern looks more like this: launch from an incubator / accelerator (~$50k), get a boost from a micro-VC round ($300k-$500k), and then take a $1m-$2m “Bullpen” type round to hit your key proof-points.”
The newest Cooley Venture Financing Report indicates that median Series A pre-money valuations were at an 8-year high in Q2 2012, leaving some seasoned venture capitalists scratching their heads.
Michael Greely, a partner at Flybridge, put it succinctly in a recent post when he said “Series A round sizes have been coming down over the last few years as companies can get by with raising less capital … I expected valuations for Series A to be a fraction of the $11 million witnessed.”Michael also did some back-of-the-envelope analysis using the common benchmark that “companies are raising ~$5 million in typical Series A rounds.”
This $5m benchmark makes sense for VCs that invest in capital-intensive sectors like biotech. It also makes sense for the bigger VC funds, as data from the NVCA indicates that almost 80% of the $5.9B invested in VC funds in Q2 2012 went to the top five firms. That is an astounding concentration, and the nose-bleed VCs simply can’t write checks less than $5m-$6m and hope to deploy this capital effectively.