We started YC’s Series A Program two years ago to fix a problem faced by every startup raising an A: VCs understand how Series As work and founders do not. This asymmetry of information puts founders at a significant disadvantage. Much as YC had done for seed stage financings - we decided to resolve that asymmetry in order to help founders.<p>We learned some interesting things, for instance:<p>- Founders on average have to meet with 30 investors to produce a single term sheet. (<a href="https://www.ycombinator.com/resources/the-series-a-fundraising-process" rel="nofollow">https://www.ycombinator.com/resources/the-series-a-fundraisi...</a>)<p>- Founders who take pre-emptive offers take 1.4% more dilution for less money than those who run processes. (<a href="https://www.ycombinator.com/resources/pre-emptive-offers" rel="nofollow">https://www.ycombinator.com/resources/pre-emptive-offers</a>)<p>- Benchmarks are almost meaningless. We’ve seen As for SaaS companies with 200k in ARR and with $9m in ARR. (<a href="https://www.ycombinator.com/resources/benchmarks" rel="nofollow">https://www.ycombinator.com/resources/benchmarks</a>)<p>While we can't work directly with every company in the world trying to raise an A, we think that publicly distributing our learnings would help all founders. Our hope is that the Guide will remove information asymmetry from the Series A process, and help level the playing field between founders and VCs.
Pachyderm had the good fortune to go through YC's first Series A program, I'm pretty sure we couldn't have raised without them, we'd tried and failed before. As with everything YC does, over time they've gathered more data, refined the methodology, and I think they've probably affected some change on VC's side as well as they're giving companies a better way to communicate with each other while they're raising, and sort of collectively bargain. This should be your go to guide for raising an A.
Thanks for the guide, although as a founder I'd say I have mostly given up on the idea of raising money from VCs. VCs care too much about vanity, and I don't fit the mold most VCs are looking for, thus they'd never invest in someone like me despite my track record of success.<p>These days I'm bootstrapping a couple small businesses (don't put all your eggs in one basket) and things are going well. It's tough as a solo founder, but I have a good set of friends who are cheering me on from the sidelines, and I make progress every day. I'm pretty skilled at most things, and for the areas I'm weak there's always Craigslist or Upwork.<p>I will say that the big advantage of not taking outside investment is that I don't feel any pressure to meet other people's expectations, I really enjoy the work I'm doing, and I get to reap 100% of the rewards.<p>Just to be clear, I intend to apply to YC again, and if a great funding opportunity came along I wouldn't say no, but I've also decided not to actively pursue VC funding anymore. For me, right now, the most sensible thing is to stay focused on building product and acquiring customers.
This is exceptionally well-written. And it looks like YC's design has stepped up quite a notch too :)<p>Quick question: how to reconcile these two almost-conflicting views:<p>1) Raising money is the CEO’s job. If you are the CEO, you should plan for it to be your sole, full-time focus.[...] Do what you can to avoid distracting others with fundraising. Co-founders or other executives are typically only brought in to answer specific questions (e.g. CTOs handle technical diligence), and usually only at the full partnership stage.<p>Even in the rare case of co-CEOs, it’s best to have a single point of contact. Investors want to see a clear decision-making process, which generally requires a final decision-maker. (<a href="https://www.ycombinator.com/resources/prepare-your-company" rel="nofollow">https://www.ycombinator.com/resources/prepare-your-company</a>)<p>2) Signing on with a Series A lead is the beginning of a 10 year relationship. If all goes well, that’s how long your board member will have a say in your company. As such, optimize for your board member, not vanity metrics, like valuation. (<a href="https://www.ycombinator.com/resources/how-to-choose-an-investor" rel="nofollow">https://www.ycombinator.com/resources/how-to-choose-an-inves...</a>)<p>Given point 2), shouldn't non-CEO founders also be involved in at least some meetings with investors to weigh in on who they want to have as board members?
Amazing guide. Everything I read makes sense. Also cool to see YC taking bio-tech so seriously
<a href="https://www.ycombinator.com/resources/for-hardtech-biotech-and-international-founders" rel="nofollow">https://www.ycombinator.com/resources/for-hardtech-biotech-a...</a>
I have a feeling that good portion of startups put emphasis on satisfying investors rather than customers, developing for the investors.
One might say it is the same (good investor knows and follows what the paying customers want), but I think it is not. Customers of a product has very different mindset than an investor and the latter may not 'know' (more like guess) better than any one of us involved or affected.
Investors do what they have to do, trying to find the future big deal (and money cow) or at least protecting their money but when startups adjust approaches for the admiration of investors then I get skeptical. And worry for the investor too a little bit if the path chosen will lead to customer appreciation as well...
Don't mind me, I just ran into several startup entrepreneurs recently who emit the atmosphere of subsistence level actors with sole focus on the money source being the closest. They do not emit an inventor vibe which is ironic as what they speak of and sell is always very inventive or revolutionary, the best so far of course. I asked one of them how he imagines the product in 5 year time for which the answer was: 'sold to someone'. Seems like their heart and proud is somewhere else.
I may have met the wrong crowd.
Has YC come out with any guides on how companies can make employee equity more reasonable?<p>Things like allowing 10 years to exercise options, not allowing founders to own preferred shares, informing employees if any following rounds include liquidation preferences or guaranteed returns.<p>Right now I have a hard time trusting employee equity and I'd love to see someone create a checklist companies can either say they follow or specify where they don't.
Is it common for Series A term sheets to state valuation in post-money? I know the YC SAFE docs are [now] post-money. I wonder if that is driving the post-money valuation term in the Series A template, or is it just that this is typical? I've no idea what really happens but from the little I've picked up in casual browsing it seems that you typically raise on pre-money valuation
<a href="https://www.ycombinator.com/resources/yc-standard-series-a-term-sheet" rel="nofollow">https://www.ycombinator.com/resources/yc-standard-series-a-t...</a> has a wrong link to the term sheet. It links to <a href="https://www.ycombinator.com/docs/Standard_Series_A_TS.docx" rel="nofollow">https://www.ycombinator.com/docs/Standard_Series_A_TS.docx</a> which is a 404. The actual link is <a href="https://d1l6icgp8w0hse.cloudfront.net/assets/ycdc/Standard_Series_A_TS-aea3e3fec698645a5180351b59bddc11b21862954a7bfdc63c4f80cb7c7c1e21.docx" rel="nofollow">https://d1l6icgp8w0hse.cloudfront.net/assets/ycdc/Standard_S...</a>
Great guide! Overall, agree with the thoughts on leverage and running an efficient process. However, speaking from experience and having spent time as a principal and associate, I would disagree with the advice that only pitching partners is worthwhile. Depending on the space(my experience is solely in hard tech), associates and principals generally make up the technical core of the team, so getting them excited is a key step in making overall progress. A good rule of thumb is to check LinkedIn. If the person has been there more than a year, assume even lower level folks have an ability to make go/no-go decisions.
Off topic: are $1M/$2M seed rounds realistic during YC demo day?<p>Even with some traction/users/conversion/revenue, and a grand long-term vision, a suggested 15%-25% dilution [1] gives $4-10M valuation. Outside SV, this is already Series A valuation. Any thoughts ?<p>[1] <a href="https://blog.ycombinator.com/how-to-raise-a-seed-round/" rel="nofollow">https://blog.ycombinator.com/how-to-raise-a-seed-round/</a>
This is shockingly comprehensive and valuable; thank you. One minor suggestion is to generate a single-page or PDF version. I manually created one although of course this will go stale:<p><a href="https://drive.google.com/file/d/1jKepii1hL9e-gkAsz906nRtgsszRXjWN/view?usp=sharing" rel="nofollow">https://drive.google.com/file/d/1jKepii1hL9e-gkAsz906nRtgssz...</a>
How much of this is relevant for companies based in locations that are NOT particularly venture capital heavy? Is this heavily slanted towards SV / SF investors that are well ahead of the pack?
This is brilliant. Thanks for doing this - it's something we will most certainly be studying.<p>One thing that would be great to have in much more detail is how to do a dataroom. There's a lot of investor hate around docsend,etc. Not sure what's the socially acceptable way to do data rooms now - time bound, downloadable?, Etc
I always assumed that raising money is akin to dating.<p>I.e. if you have the right product with tractions from dozen of customers, then the VC will find you?<p>Am I missing something?
Dang, mind changing the title here? "Otherwise please use the original title, unless it is misleading or linkbait; don't editorialize."<p>Feels important for YC's submissions to follow the guidelines, otherwise it tells everyone else - hey why bother following them yourself when the people associated with the site don't follow them.