April 30 2013
by Scott Johnson

Redefining Series A (and college education)

In the good old days, aka the mid ’90s, the venture world was quite orderly.  Angel rounds were under $500K.  Series A rounds were $3-$5 million for companies just getting their first customers, and “B rounds” happened 18 months later at $5-$15 million to scale up.  Which firms did which type of investment was well understood.

Today, we have a bloom of Angel investing with round sizes routinely north of $1 million, there are micro-VCs doing seed investments, single firms have different funds for different stages, there are several multi-stage firms with very large funds, a massive contraction of the number of active venture firms, while hedge funds, corporations and family offices are doing direct investments across a spectrum of stages.  Add crowd funding and secondary market liquidity to the mix and we have what appears to be a venture finance hairball.   There is no longer a “typical” venture fund.

Then there are the companies themselves.  Where once seed and Series A capital was primarily used to create a technology barrier to entry, with all the powerful software tools available now, those technology barriers of old look more like speed bumps.  So seed companies are expected to gain real customer traction, and Series A often looks like what used to be Series B, particularly in companies that touch the consumer.  Even how we define “traction” has evolved to include many measures beyond revenue.  So there is no “typical” early stage company any more either.

So what is Series A today?  My working definition is that Series A is a financing round, from any source, that exceeds $3 million in size, and has a post money under $15 million.  No longer can we point to the firm that led the round or the customer traction or stage of product development to define Series A.  Which is fine with me.

The old world was easy to understand, but too confining and exclusive.  Startup capital was something available to a few risk taking MIT or Stanford grads.  Today we have crowd funding, and starting a company is available to anyone who can hustle, get some engineering done, and find a big problem to solve.  A potential job creation engine like no other we have ever encountered.

Which leads me to a public policy digression.  We need to redefine what we mean by a “college degree” just the way we have redefined what we mean by “Series A”. The real goal of US economic policy should not be to make “a college degree” available to everyone.  This implies paternalistic employers looking to hire legions of generic college graduates to be “knowledge workers.”  Very retro thinking.

Rather than a generic college degree, policy should strive to make a “rewarding career” available to everyone.  Which, in a global economy, means we should make starting a business, or contributing to a young growing business, a possibility for everyone.  I propose an “entrepreneurial path” with both significantly lower debt accumulation so graduates can take lower/no pay, and a new cadre of compulsory coursework that includes work experience so they can hit the ground running.  And not just tech startups – Restaurants, landscaping companies, hotels, all of these vital enterprises require a grasp of accounting, finance, sales, computer skills, internships – things most students graduate without.  Startups are the creative expression of economic ideas.  Teams who start a business are practicing artists, and giving these artists the education, tools and capital they need to be productive founders or startup employees is what will sustain economic growth.

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