Why Series A Funding Could Be Crushing B2B Startups

This article was originally featured on PYMNTS.com
PYMNTS.com referred to Mercury Fund’s investment strategy, which includes backing early-stage startups that have the potential to disrupt manufacturing and other American industries.

It’s a difficult truth. Even after successful seed rounds, most startups won’t receive the next round of funding needed to keep the business alive. According to research firm CB Insights, 61 percent of seed-funded companies won’t be able to cross the gulf to Series A. Every year, this harsh reality leaves thousands of startups with a promising businesses and no money. Funding shortages are most acutely felt by startups away from the hot costal markets of Silicon Valley and New York City. These startups, often B2B and almost always SaaS, aren’t sexy. They won’t challenge Facebook or be the next must-download app on college campuses, but they are poised to change the way hallmark American industries—from manufacturing to utilities—operate.

Over the past few years, seed funding is increasingly easy to come by. Once the domain of angel investors, there are plenty of ways new businesses can get the needed capital to get off the ground. Whether funded by friends and family, bootstrapped or crowdfunded, seed money has never been more available. In 2014 the average seed round clocked in at $1 million, according to Pitchbook. Not that every startup needs all of it upfront. The barriers of entry for a new startup are lower. The price of hardware and the cost of developing software have continued to drop. Startups can often get by on a few hundred thousands and seek additional funds as needed.

Access to seed money has increased, but the amount of Series A money hasn’t. In fact, it’s pretty much remained stagnant since the post-2009 recovery. Meaning more seeded companies are fighting for fewer Series A spots. The rules for gaining access to Series A money haven’t changed. Last year, the average Series A round brought in $4.1 million and required a pre-money valuation of $12.9 million. In comparison, the average seed company had a $5.3 million pre-money valuation. To even get in the door at a VC, startups are looking at major value creation.

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Posted June 2015 by | Intelligent Manufacturing, Software, Venture Investment Strategy