Having recently helped various portfolio companies raise their Series A, I can confirm it’s tough out there. Raising a Series A in 2025 is substantially harder than a few years back. Below are a few observations, including some tactical advice for founders on how to succeed with their raise.
1/ Series A is the new Series B
- Today's Series A is more akin to yesterday's Series B in terms of investor expectations on Team, Traction and Product
- Investors are frequently seeing companies go from 0 to $3-5M in a year, so their expectations on what constitutes fast growth have shifted dramatically
- As the chart below shows, the number of Series A rounds is also down. Overall, less companies are making it through the funnel. It’s critical to increase the number of firms you are pitching to (30 first meetings should be a minimum)
Less rounds, same price, much higher revenue requirements
2/ In many cases, it’s worth considering a jumbo seed than a Series A
- In general, $1M of revenue is no longer enough to raise an A. You should expect to have $2-3M to give yourself the best shot
- At $1M, you may be better off calling your round a seed and simply aiming to raise a jumbo seed ($5-8M round). You can pitch larger seed funds who write $3-7M checks (e.g. First Round Capital, Foundation Capital, Bonfire Ventures) as well as multi-stage firms
- I believe there will be a new class of firm coming to fill this gap in the market. We are already seeing firms like Standard Capital (spinout from YC) coming into existence, writing $5-10M checks
3/ Every category is becoming more competitive than ever. And competition is paralyzing investors
- There are fewer n of 1 companies. Even categories that were previously uninhabited by software companies are quickly becoming crowded. At Series A, investors were used to picking between 1-3 strong players. Now there may be 5-10
- Most Series A investors get paralyzed when there are 10 strong players in a space, even if they are excited about the space. Unless you are dealing with an investor with huge personal clout, you may find that the average VC has more fear (of picking the wrong horse) than greed
- It’s also important to keep an eye on other players in your category. You don’t want to be the 5th player in your space raising an A, as that itself can make the pitch to investors tougher (who feel that the top investors have already made their play in a category)
To get their greed to overcome their fear, you need a strong and compelling narrative on Differentiation (and counter positioning). This could be a unique narrative around market segmentation, approach (i.e. what end prize you are chasing), compounding advantage, vision, product roadmap or room for multiple winners in a new category
A related concern investors have when a market feels crowded is Defensibility. The ironic truth is that the more of what you are building that isn’t AI, the more defensible you will be. Build painful integrations, build workflow software solving more and more jobs to be done, build proprietary distribution partnerships, engineer network effects into your product (where applicable). Do hard and specific things that aren't and won't be done by the AI foundational models. The more, the better
- When investors try and convince their partnership on why to back a particular company, their argument often falls on the Founders. And a brutal competitive environment like this necessitates wartime CEOs. Founders who can convey they have the speed, vision, ambition, strategic thinking and fundraising chops are more likely to cut through the noise.
4/ Some categories are only newly investable. Not all investors have updated their priors on what spaces that used to be bad are now good
- The irony of AI is that it has turned uninvestable sectors into hugely attractive ones. Sectors like debt collections, recruiting and insurance claims were considered unserious places to build startups until very recently. But not all investors have updated their understanding of the opportunities in these categories.
- Most relevant for founders: it’s impossible to convince someone who is skeptical of your space during a fundraise
- It’s important to do your research to find investors who are already believers in your category (e.g. have been writing blog posts, or putting out calls for startups in your space) and then network towards them through a warm introduction
- The other class of investor who can convert into a Yes is someone who is extremely curious and willing to learn about a new space. But it can be hard to identify these folks in advance
5/ In many spaces, incumbents are acquiring seed/Series A startups, primarily to nip an early threat in the bud
- In the last 3 months, we’ve seen three of our early-stage companies (revenues in the $1-4M range) get acquisition offers from large incumbents in their space. Like Facebook with Instagram, there is a sense from incumbents that a fast growing AI upstart could be a real threat in the future, so their preference is to take out the competition early. We are seeing offers in the $50 - $150M range for such companies (which can be very meaningful exits for founders who’ve only given away a small portion of their cap table)
- Savvy founders are secretively dual tracking a Series A and M&A process, using a Series A term sheet as a means of driving up an M&A price
Overall, it’s evident the Series A chasm is real and the bar has gone drastically up. Clearing this bar requires strong execution coupled with careful planning (on narrative, differentiation, defensibility and investor targeting). And most importantly, it requires headstrong founders who are willing to do whatever it takes to win their category - be it outcompete on fundraising, recruiting and product expansion. Darwinism is in full flight, but the prize for success is bigger than ever.