You are not even near a seed round if you haven’t received minimum $350k investment, meaning your startup is likely to fail rather to rise. ( wait a minute, I thought again). It will fail. You can run a company for ten years with zero growth, it is also a fail.
You have got the seed investment. Now you have a chance to become a unicorn, 1 in a 1000 though. In fact it was valid, if you were to found it ten years ago. Now your chances are lesser.
If you have received your first $3m investment, you will more likely to receive a next round investor than you had in previous. And after this point you will face with a choice of double or loose most. Actually if you are not diluted too much you can still be ok if you take it.
If your investment ticket size is more than $25m, than 1 of 3 investment you made will likely be a unicorn. So size does matter.
If your ticket size is around $3m, your unicorn creation chance is 5.5%. If you had one, it is again 5.5%. Because you can’t control the next rounds all the way down to being a unicorn.
With around 30% probability the first $350k you put, will bring the value of your investment to $2.8m within 3 to 4 years. It is your strategy and experience how to unlock that value.
If you are investing another $3m after the post seed you put, in every 2 of 3 investment you will be the only investor left and you should get away with it. It is going to be your exit story and strategy, not the next round investor’s.
Investors of Venture Capitalists (LPs)
Unicorn success of a VC investing at seed, A, B, C rounds are independent cases, not part of a strategy. There might also be some Midas(s), I hope they except you as an investor.
The VC you invest flips the coin (literally look at the numbers) at each round. If heads comes the next round happens, your return is tied to next one’s success and if they had at least doubled the value of their investment than you may expect a nice return. If tails, you should know what your VC have been doing to secure your return.
When exit probabilities are kept equal, the highest return you can get is at investing into a VC doing post seed and series A investments. Because highest likeyhood of receiving a next round investment is at series A.
And now the conclusion...
These hypotheses are based on the investments made a decade ago in US. Seed and Series A funds soared since then along with early stage Venture Capital activity. Emerging Markets bring more complexity to this equation. It is as equal as important to device smart and protective post investment and exit strategies as with receiving next round investments and running after further growth.
It takes years observing, analysing and devicing investment management strategies, sharing and gaining more experience from global partners and executing these on investments effectively.
We believe at idacapital, return multiples and odds can be calculated and managed. And you can achieve;
If you are a founder, get your correct post seed and Series A from a qualified and experienced investor. Thereby increase your likelyhood of not to fail first (the next round would come anyway).
If you are a Venture Capitalist, all we said was in an encapsulated distant past time frame. You should device your own strategy.
If you are an LP, past performance can only be meaningful if it substantiates the pre and post investment strategy of a portfolio, otherwise you might be fooling yourself with seeking 1 in 1000 performance.