DUMP THE ALPHABET ALREADY!

 alphabet-soup

Is it a seed? An A? A Seed 2? Praise be to Marc Andreessen’s tweet and Mark Suster’s reply on what a funding round is called. It’s confusing and misleading.

I’ve invested in private companies for years, and I still have no consistent idea of how people talk, having done rounds nominally called “B”s valued on $3mm pre, and one “Seed” valued at $20mm. But I sure wouldn’t use those terms to describe the investments, they have no meaning.

Not that I’m innocent. Of the two companies I founded, the eSecLending only raised once, but it was $10mm. Clearly, for first time out we didn’t call it a B round, but by most size standards it was. And the second company, BuysideFX raised two $2mm tranches, both of which we folded into the same legal docs (“Seed” and “Seed2” tranches), with different valuations but with same voting rights as per the preferred shareholder seat. Confusing, yes?

And does the expectation of what a typical size round vary by vintage? Is a 2000 A size round equal a 2014 B?

It shouldn’t be this confusing. Here’s my proposal. Let’s just adapt the nomenclature that investors use informally, and talk about “ON” and “AFTER”. “2 on 6” means you’re raising $2mm with a post-money valuation of 8mm. (6 was the pre-money valuation.) Raising “10 after 3” means getting $10mm new dollars to follow after $3mm have already been invested…regardless of the number of times you actually had rounds.

Let’s say the example is Box. According to Mattermark, the company has raised successively:

  • an undisclosed amount
  • 350k “Angel” round
  • $1.5mm Series A
  • $6mm Series B
  • Unknown round $5.1mm
  • Unknown round $7.1mm
  • $15mm Series C
  • $48mm Series D
  • $81mm Series D again
  • $125 Series E
  • $25 Series E
  • $100 Series F
  • Unknown round, $150mm
  • Another Unknown round, $150.

WTF?

Here’s how I’d phrase the last round: “150 after 550”. Not “unknown”, “the unknown after the unknown,” or “2 after F”. Even saying “the last one” doesn’t carry that much information if you’re unfamiliar with the company. Using “On” and “After” means you wouldn’t have to worry whether Box did multiple reopenings or unlettered rounds. If I knew the valuation (let’s call it $2B for fun,) you could say that last round was either “150 on 2B”, or “150 after 550”. Who cares what letter it is if you’re not trying to track down the legal docs. Anybody have better ideas?

Let’s dump the alphabet soup for some standard means of comparisons.


3 thoughts on “DUMP THE ALPHABET ALREADY!

  1. Gary_Riccio Reply

    This seems so clear. Why do people use the alphabet soup? Does it have something to do with investor exits and what they imply about the ROI or a prior investor’s experience with the entrepreneur or about the number of cooks in the kitchen?

    1. Robert K Reply

      Good read. One assumption solely based on the order of ‘A’ – ‘F’ suggests a series of traunches. The order of precedence and a defined financial need also suggests this business model has a series of benchmarks and milestones … directly associated with that funding round. So, business hits milestone, it’s capital call time. Very smart way to ensure (a) business performance, (b) reduced risks to investors. I would guess that the ‘undisclosed’ amount is the initial startup capital put up by the originator(s) of the model. I’d also make the assumption that the last two traunches [undisclosed series] … is a ‘if and when we need it’ … and is not 100% estimated at the point of pitching it to investors. It may be that is’s not necessary at all. But – who knows. My two cents.

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