🥊 Startup Capital Raises: Proposing a Simpler Naming Convention
If you've been navigating the startup industry for any length of time, you're well-acquainted with the cryptic lexicon that defines each capital raise: Pre-seed, series seed, series A, series B, and so forth. Each of these terms has specific connotations and expectations attached, creating an intricate dance for startup founders as they seek investment.
However, the ever-shifting nature of the startup landscape and the variable sizes of funding rounds have created inconsistencies that make these terms less useful and more confusing. Today, we're going to dissect this conundrum and propose a more straightforward, intuitive solution.
Confusion in Conventions
To unpack this, we need to dig into the roots of the problem. The terminology of capital raising has long been in flux, and startup founders often find themselves inventing round names such as "Series Seed Extension" or "Series A-1". This is usually an attempt to avoid signaling issues with their startup's performance or their ability to raise a full round.
However, this tweaking of the conventional naming system only creates more confusion. It sends mixed signals to potential investors, obscuring the true nature of the startup's financial health, and doesn't provide clarity on the actual funding stage.
Moreover, the sizes of these rounds have ballooned over the past decade. Ten years ago, a seed round was in the realm of $750,000 to $1,000,000. By 2021/22, that figure had skyrocketed to a staggering $5-10 million. But now, the pendulum seems to be swinging back, with seed rounds seemingly settling in the range of $1,000,000-3,000,000 (and less is more, in my opinion). These changes underscore the variable nature of the current system and the need for more transparency.
A Proposal for Clarity
As a 14-year veteran of the startup industry, both as a founder and an angel investor, I've witnessed firsthand the confusion these ever-changing definitions and round sizes cause. This is why I'm proposing a new, more simplified convention: "Round and #".
Let's strip back the terminology and call it what it is: Round 1, Round 2, Round 3, or 1st Round, 2nd Round, 3rd Round, and so on. The initial friends and family round can be referred to as Round 0, highlighting its inception-stage nature.
In this proposed system, the round number, not an elusive letter, signifies the stage of the startup. It's a transparent approach that makes it clear how many times a startup has returned to the well for funding, without implying any specific performance level or round size.
Embracing Change
The startup industry is a dynamic, fast-paced world that thrives on innovation. However, to foster a healthy and transparent ecosystem, we need conventions that can keep up with the changing tides. As we evolve our businesses, technologies, and strategies, we should also evolve our language and communication.
By switching to a numbered round system, we remove the opacity around a startup's funding journey, presenting a clearer and more accurate picture to both current and potential investors. This shift will not only simplify the process but also ensure the language we use mirrors the transparency and authenticity we value in the industry.
Let's take the initiative to make the startup financing landscape more comprehensible. It's time to evolve from the conventional, and often perplexing, "Pre-seed, series seed, series A, series B, etc" into a system that truly mirrors our ever-changing industry. Let's make the jump to "Round 1", "Round 2", and beyond.