In my posts about how much capital should be raised from an entrepreneur’s and VC’s perspective, I wrote about the incentives that drive the target size of a given round. However, there is another dynamic to consider: which round of capital is being raised. Later rounds are typically larger than earlier rounds. There are a few reasons for this:

• As the company matures its cash burn rate typically increases (until growth begins to plateau and profits offset burn), creating a need for more capital to take the company to the next milestone. The higher burn rate also means that the company needs more money in order to not have to conduct another raise as soon as they complete this round.
• Mature companies have higher valuations, enabling them to raise more money at a lower level of dilution.

Comments

[Eric Wiesen]

The other interesting piece here is that as you grow your company into later rounds of financing (assuming you are the type of business that follows this trajectory), the players at the table will change. Typically your Series A investors will be firms that specialize in that stage of the business and bring relevant skillsets and networks with them. By the time you are a Series C or Series D company, you are dealing with a whole different stratus of investors. Growth-stage or later stage investors tend to be more focused on financial valuation and metrics, and might have a different view of the composition of your team than early-stage investors. In addition, as you progress through the funding path to IPO, you're likely to get involved with strategic investors as well, and they have different objectives and processes than traditional venture firms. To Mark's implied point, at each round of funding, try to understand the likely outlook of your target investment firms. If you are pitching to Mark at DFG Gotham for your Series A, you are making a different pitch than if you are pitching to someone at TA or Summit for your Series C.

[gaic]

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