Aug. 21, 2025

Q2 2025: The new Series A Bar is $3M ARR—& only 20% of seed startups make it. | Peter Walker, Head of Insights at Carta

Show Notes
Transcript

Peter Walker from Carta drops the hard data every founder needs. Based on actual cap table data from 1000s of startups, this Q2 update reveals the brutal new reality.

It takes 2+ years to go from seed to A (up from 1.6), you need 3X the revenue you used to, and if you're not AI, you're getting half the attention.

But there's good news too—teams are finally getting leaner, exits are picking back up, and the worst of the funding winter might be behind us.

If you're raising in 2025, this is your reality check.

Why You Should Listen:

$3M ARR is the new Series A bar—& it takes 1 in 4 founders 3.5+ years to get there
Half as many seed deals are getting done but at 20% higher valuations—you're either in the AI club or you're out
Founders own just 56% after their first priced round and only 10% by Series D—every round costs more than you think

Keywords:

Carta data, Series A requirements, startup fundraising 2025, seed to Series A timeline, ARR benchmarks, AI startup valuations, bridge rounds, founder dilution, startup team size, venture capital trends

Send me a message to let me know what you think!

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Let's talk about teams.

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This is perhaps the biggest shift in startups, which is just teams are smaller.

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Everyone's talking about it.

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The headlines are true.

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If you are building in startups right now, especially if you're building in AI startups, it is the expectation is that you're going to try to do more with less.

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The latest data would show that if you raise a seed right now, you have a one in four chance of it taking three and a half years or longer to raise an A, which frankly, I can tell you No one is

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planning for it.

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The founding team, after their first priced round, which in this case will be a priced seed round, own on median 56% of their own business.

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So from 90% to 56% after their first price round.

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Raising money All

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right, man.

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Peter, welcome

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back on

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the show.

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Pablo, great to be here, as always.

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How you been?

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Good, man.

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Always excited for these quarterly episodes.

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We've been doing this every single quarter for the last, probably, maybe, it might have been a year.

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Like, is this our fourth?

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Is this our third

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or fourth?

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I think it's about a year, man.

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Yeah.

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There you go.

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It's becoming a show now.

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I like that.

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Well, you know, there's so much data about, like, startups and things like that, and I just, honestly, and I say this, I'm not getting paid to say this, I promise, but, like, Carta is, it does ground me because I know the data comes from cap tables and that just changes the game a little bit instead of just, I've been on the other side where like companies report things to TechCrunch or whatever, and it's not 100%, you know what I mean?

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And so the key things are often left out.

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So anyways, you made this state of VC 2025 report, posted it about a week ago on LinkedIn.

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I was just going through it.

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And I think this will probably be the best way to get out what the latest is in a pretty kind of cohesive manner.

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So we'll go through this.

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We'll have the video up on YouTube as well, but obviously a lot of people are just listening, so we'll talk about the charts too.

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Obviously, the visual is ideal for those who

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can see it, but we'll make it work.

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I've gotten decent at describing charts that no one can see.

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So let's see how it works.

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Call me to it.

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It's a superpower, man.

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All right, man.

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I mean, yeah, we can just maybe pop through this.

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So I put this together, yeah, a couple weeks ago, and it was trying to just aggregate what we know about what's going on for venture-backed startups so far this year.

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The first thing that I think, so this is a chart of just total capital raised by startups on Carta from 2019 to 2025, every quarter.

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And I think what's still underappreciated is just like the, what we did in 2021 has echoes to today.

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And it is not as though we are free of that period.

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And then the other weird thing is 2021 happened, tons of funding.

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probably overfunding, overvaluations, just the bubble behavior.

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And then in the middle of 2022, when things were declining and it looked like we were going into a startup recession, we had the launch of ChatGPT publicly.

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So on the one hand, it kind of feels like we overfunded a bunch of companies and then we were in route to having what would have happened in 2008 or 2000, where there was going to be an extended period of decline for startups.

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But then we had AI.

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And so those two things happening basically simultaneously, I think contributes to a ton of confusion about what startups are right now.

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I'll say two things that jump out at me.

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One is like the kind of the jump from pre and post COVID to that 2021 COVID period was like two and a half X.

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I mean, that's the jump that we saw in about a year.

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The other thing that I think is interesting is when you're in that down, you feel like the world is ending.

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But if you look at the numbers now, like the absolute bottom, which was Q1 of 2023, the amount that raised, if you compare it to the pre-COVID years, was actually in line, would have been like a not great year by 10%.

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Like we're not talking about it went to his half of what it used to be either.

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Yeah, the decline was, and obviously this is, you know, there are more startups on Carta today than there were back then.

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So it's a little bit apples to oranges, but still- I think that people overrated.

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This is the thing.

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I don't think the decline was actually that serious.

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And part of that was because everyone started getting super, super excited about AI companies.

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So in some ways, I think you could make the case that the decline should have been larger.

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And if it had been larger, maybe there would be more healthy companies today.

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But I'd actually love your opinion maybe a little bit later on what is going on with AI companies and if they are...

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Many of them, at least the hottest ones, are real investable opportunities because I'm starting to get that bubble itch a lot lately.

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It's hard, man.

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Yeah, it's tough out there.

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It's tough out there.

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Next thing for founders specifically, I think this is maybe the most immediately useful piece of data, which is how long is it going to take between these rounds?

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How long do you have to plan to use this cashboard?

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It used to be that the standard VC advice of you're going to fundraise every 18 to 24 months was pretty good advice.

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That was good advice for five or six years.

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Now that is maybe bad advice because it is taking from series A to series B, for instance, it's the median amount of time is over two and a half years.

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And the highest higher end, you know, the 75th percentile is well over three years.

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So if you are one of those people, golden child, hot AI companies, sure, you're getting term sheets every week.

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You could fundraise whenever you want.

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If you are not in that cohort and that cohort is pretty small, it is going to take longer than you think to fundraise.

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So you got to plan for this cash to last you a while because what you don't want to do is to get into a place where one, you're six months from closing down and your burn is really high and you need cash.

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That's a difficult place to fundraise from.

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But two, you also don't want to be relying on so many bridge rounds.

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I think bridge round behavior and sort of the new theory of, well, my leads are just going to lead a bridge and it's going to be fine.

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I don't need to raise the whole thing now.

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I think that gets people into trouble.

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I think, I mean, this is, it's pretty incredible

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to change, right?

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So to be clear, this is like for looking at C to A, those who raised in 2024 and then raised in A at some point, it took them 2.1 years on median.

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Is that the right reading?

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So, I mean, if you look at that, it used to be 1.6, like one and a half or so years.

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Now it's two, but the other thing is, you look at the 75th percentile, the other way to think about it is, you used to have a one in four chance of it taking two and almost a half, a little bit less, to raise an A, which you can kind of think of as within the planning of worst case scenarios, like that's kind of your worst case scenario.

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Assuming you're going to raise an A at some point, you might think about the fact that it might take a little longer than two years.

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Okay.

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Now that worst case scenario planning has you looking at like three and a half years.

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And that's a one, we're talking about one in four.

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I'm talking about 95%, like one in 20, like very unlikely.

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We're talking about, you know, you raise a seed at least in 20, maybe it's changed, but the latest data would show that if you raise a seed right now, you have a one in four chance of it taking three and a half years or longer to to raise an A, which frankly, I can tell you, no one is planning for, no one.

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Like literally nobody is purposefully, like some people over-raise and they end up with a lot of money and they end up being able to make it that long, but nobody is like objectively trying to fund three and a half years worth of runway.

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It's not a model that exists on the investment side.

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So this is the big question is, what is behind that number?

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Is it all companies who are just desperate to raise and can't do it?

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Or is it also reflective of companies who raised a seed round and they're looking around going, I might not need more cash, the seed strapping phenomenon.

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And I can't, as much as I try to dig through this data and figure out how to show seed strapping and if it's really happening, I just can't figure out a way to show it because we don't have the null case.

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Like if you don't raise, you don't raise.

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And I don't know why you didn't raise.

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Yeah.

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And that is, so there's something behind there that's causing me a little bit of anxiety.

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Like, I don't know if you see explicit seed strappers a lot or if that's just kind of spoken about and it's not actually happening.

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I would love your opinion on it.

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I still think like there are companies and we have companies that, you know, are like this idea of maybe getting to profitability is sexier, let's say, or more well adopted today than it was before.

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in maybe even 2019 to like 22 period.

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But still, most founders that go into this game, they're pretty ambitious.

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And so if they have insane growth, not always, but very often, and they have a story that VCs will buy, they very often go out and try to sell it and raise.

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Maybe they push it off.

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What I've seen happen anecdotally is There are companies that for whatever reason don't fit the mold of what's hot right now.

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And I think those companies maybe have less heartburn about that fact and they just kind of put their heads down and just keep growing revenue.

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And at some point, the rest of the world wakes up because at some point it becomes undeniable.

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Like, oh, you're at 20 million, you're at 30 million.

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Okay, maybe I'm wrong.

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Like, maybe this is a great thing.

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It's a huge thing.

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And then they go out and they raise.

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And so maybe there's more of those whereas before, I don't know, they would have had more anxiety about the fact that somehow VCs don't like them.

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That seems...

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But I don't...

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Is it common for people to seat strap these days?

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I don't think so.

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Because again, I think if you have that crazy market pull, you're going to want to lean into it.

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And money is still money.

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It still buys a lot of things.

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Yeah.

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Money is green.

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Capital is hard to refuse.

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I feel the exact same thing, which I just think that this whole idea of seat strapping is interesting.

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And some founders are almost certainly pursuing it.

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But as a general asset class, VCs are okay.

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They're having a lot of deal flow.

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It's not like they're running out of people to invest in.

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Um, so brings us to valuations a little bit.

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So this is, again, I start to, I start to just see AI everywhere throughout this deck, even in charts that it's not explicitly called out in.

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So median valuations over time in 2022 Q1, which was the old, uh, peak, they hit about 14 million.

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This is seed stage valuations.

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Yeah.

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14 million pre money expensive.

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Uh, Now they are at 15.6 million.

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And in Q2, they're going to be 16 million or so.

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So it is pricey.

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This does not factor in inflation.

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So on a purchasing basis, maybe it's just about where it used to be.

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But even so, these are expensive seed stage companies.

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These are really expensive seed stage companies.

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The other part of this chart that those of you can see it is I just think that it's pretty obvious fewer and fewer rounds are happening.

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But those that are happening are generally speaking, are happening at higher valuations.

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So there's a in crowd and an out crowd.

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And the bifurcation between those two things has never probably been wider than it is today.

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It's crazy to see, like when you see it, I mean, it just, you know, pictures, thousands of words or whatever, like the just steady, like we're talking about three years worth of steady decrease in volume and at least two years worth of steady increase in valuation.

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So And you can assume like the dilution probably hasn't changed.

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I don't know if that's a good assumption, but I would assume that it hasn't, which means the rounds for those getting it, like fewer, even at seed, fewer companies, like now half as many as three years ago are getting 20% more capital.

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So it's more like, which is actually a weird thing.

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I'm just thinking out loud here.

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It's like somehow the industry is deciding to make fewer bets and make every bet higher conviction, 20, 30% higher conviction than it used to be just based on size.

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Which intuitively, like I don't want to go against the market, but intuitively, I'm like, it doesn't foot because the whole thing is who the hell knows what's going to happen.

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And you do want like a thousand and tens of thousands of companies to get seed funded and then TBD, which one grows, right?

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As an

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asset class, you're totally right.

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Like, again, I put out this data a while ago that pissed some VCs off about portfolio theory and how I think most seed investors do not make enough investments.

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And they're like, no, you have to concentrate.

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That's the only way to win, et cetera, et cetera.

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There's a lot of different debates about that.

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But remove that from an individual investor basis.

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Just look at venture as a whole.

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If you wanted venture to be very healthy, you would want venture to invest into a lot of different kinds of seed stage companies, some of which don't have the metrics and are just weirdos that might work, right?

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That's kind of the point of venture capital.

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That is not the point of venture capital right now.

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People are concentrating money into very consensus founders.

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Yes.

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It's gone off from an AI lab.

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Congrats.

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Here's a billion dollars.

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That is what's going on.

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That's where a lot of capital and time and effort and attention is going.

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And it never has felt more like there is a people in the sun that are AI native or somehow have the right credibility stamps.

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And then there's everybody else.

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And that, again, that bifurcation is always true in venture, but it feels...

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especially acute right now when I talk to founders that are not in that sunny category.

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The only

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way I could make sense of this and it being rational and correct investing would be to think about it as because of AI, there's almost like this new forest that just opened up and there's all these low-hanging trees and all this low-hanging fruit.

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And if you're going after that low-hanging fruit that are so obvious that everybody gets, then you're going to get funded and everybody's going to go fund it because it's this huge new opportunity.

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If you're doing anything else, nobody's there looking anymore.

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And there's something there that's like, okay, that actually is aligned with the idea that AI just opened up.

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Because that is true.

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I see it anecdotally where what used to be insane value has totally changed.

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Like it used to be, think about the edge industry.

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of B2B SaaS, like the ending years.

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And you're picking at these marginal things in this like small niche place and trying to like use more software to do things because all the obvious opportunities like kind of got taken, right?

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And now with AI, it's like, oh, all of a sudden you don't need to do this anymore.

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All of a sudden you don't need to write anymore.

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All of a sudden like you're like, okay, this is no brainer value.

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Of course, everybody else can do that too.

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But that would be

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the only narrative.

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It's as though all the software categories that were completely mature and, you know, no one's going to build in CRM.

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Salesforce won.

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Yes.

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No, CRM is back on the table.

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Do whatever you want.

00:15:11.184 --> 00:15:11.385
Exactly.

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The problem, and I think that that is both True and not enough, like not sufficient to explain what's going on because the problem with that thinking is, okay, we are going to fund these greenfield, quote unquote, greenfield opportunities as though there's no incumbents.

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One, there are incumbents and they're moving into AI really quickly.

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And two, those niches get filled.

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There are a hundred AI powered CRMs now.

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So pouring money into the eighth best new AI native CRM is a waste of money.

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And it will be over time.

00:15:45.020 --> 00:15:49.106
It's just that right now the bubble is bubbly and it feels very...

00:15:49.287 --> 00:15:54.193
All these concentrated bets are just eating cash.

00:15:54.274 --> 00:16:05.469
I mean, the dry powder thing and when you look at what's going on with really big venture funds, which are barely even venture funds anymore, there's some new kind of institutional capital.

00:16:06.009 --> 00:16:09.173
They are completely price insensitive and they are just...

00:16:09.474 --> 00:16:14.200
pouring money into whatever they think has the potential to be generationally returns.

00:16:14.541 --> 00:16:19.226
And they're not really caring about price, which is a weird place for people that don't have that capital to play in.

00:16:19.707 --> 00:16:19.927
I think

00:16:19.947 --> 00:16:23.753
there's some good fallout here in terms of like action items for founders.

00:16:23.793 --> 00:16:27.038
Like either you're in these AI categories, if you're not.

00:16:27.138 --> 00:16:33.947
If you are, and I was talking to a founder who is in one of these not long ago, he's in a vertical that happens to be hot and he's doing AI in that vertical.

00:16:33.966 --> 00:16:35.308
So he's got like hot times two, right?

00:16:35.688 --> 00:16:37.451
And he's getting money thrown at him.

00:16:37.511 --> 00:16:38.432
Nothing insane, right?

00:16:38.472 --> 00:16:41.393
But like, it's just, He feels like he's been through it a few times.

00:16:41.452 --> 00:16:43.035
It's like, wow, it's so easy to raise right now.

00:16:43.636 --> 00:16:46.422
And I think, you know, you want to be a seller when everyone's buying.

00:16:46.442 --> 00:16:48.985
So I think if you're in that case, like raise that money.

00:16:49.005 --> 00:16:52.592
You don't know how long that insane heat is going to last.

00:16:52.993 --> 00:16:56.960
So take it in at low dilution and, you know, spend it wisely.

00:16:57.000 --> 00:16:59.063
But don't don't be crazy about it because don't just assume the

00:16:59.104 --> 00:16:59.865
tap will keep flowing.

00:17:00.385 --> 00:17:06.194
I think that a lot of founders that are in that category are thinking the same way, which is, I need to strike now.

00:17:06.434 --> 00:17:09.881
I need to raise now because I'm never going to be more in demand than I am right now.

00:17:10.362 --> 00:17:15.809
But am I the kind of person that has enough discipline to not spend the money?

00:17:16.631 --> 00:17:17.833
And that is the real key.

00:17:18.193 --> 00:17:33.769
Because right now, I think Bessemer just came out with a report around the state of AI this year, and they were segmenting it by The really 0.1%, the cursors, the people everyone talk about that are doing$100 million of revenue in like two years or less.

00:17:34.351 --> 00:17:46.589
And then the sort of wider portion, they call them shooting stars that are doing like what used to be very, very, very good software revenue, but it's not as crazy as$100 million in a year.

00:17:46.609 --> 00:17:54.162
And for those, like that second category of companies, you actually do have to spend in a more reasonable way.

00:17:54.594 --> 00:18:00.920
There's only so many companies in venture that get to spend money like money is free forever.

00:18:01.661 --> 00:18:04.584
OpenAI can spend as much money as they want whenever they want to.

00:18:04.884 --> 00:18:06.266
It's going to be free for them for a long time.

00:18:06.905 --> 00:18:08.748
You're probably not Sam Ullman.

00:18:09.209 --> 00:18:12.071
So that is a good point for founders.

00:18:12.231 --> 00:18:15.714
You need to know, even with an AI, what kind of AI founder am I?

00:18:15.734 --> 00:18:17.136
Where do I see the AI spectrum?

00:18:17.156 --> 00:18:31.212
Because sooner or later, we're showing a chart right now that shows seed stage valuations for AI companies being 40% to 50% higher, I am pretty sure that in the next two years, I'm just going to stop reporting on AI.

00:18:31.452 --> 00:18:32.554
Yeah, everything's going to be AI.

00:18:32.575 --> 00:18:33.816
Yeah, it's not even going to make sense anymore.

00:18:33.836 --> 00:18:35.939
I don't report on JavaScript, right?

00:18:36.660 --> 00:18:38.741
It is going to go away as this category.

00:18:38.781 --> 00:18:39.923
We're just going to talk about software.

00:18:40.825 --> 00:18:55.507
And you're thinking about that, the valuation, multiple and premium, et cetera, it has to compress in some way unless we just really are creating software$500 billion companies every week, which I kind of don't think we are.

00:18:56.067 --> 00:18:59.031
Yeah, I think, I mean, reporting on AI in a few years is going to be like reporting on internet.

00:18:59.071 --> 00:19:00.133
Like, are you an internet company?

00:19:00.192 --> 00:19:02.076
You know, like, what are you talking about?

00:19:03.176 --> 00:19:04.920
And so it's not like B2B SaaS.

00:19:04.980 --> 00:19:05.901
B2B SaaS is a category.

00:19:05.921 --> 00:19:10.507
It will always be because you have consumer, you have marketplace, you have different business models, but like AI is infusing into everything.

00:19:10.547 --> 00:19:12.269
So I fully agree with that.

00:19:12.289 --> 00:19:18.258
And I think the other thing I just want to say is if you're not in that AI category, you do have two huge data points.

00:19:18.478 --> 00:19:20.500
One is it takes way longer to raise an A.

00:19:20.921 --> 00:19:22.949
B, There's half as many deals getting done.

00:19:22.969 --> 00:19:26.454
And most of those are not getting done in companies like you.

00:19:26.474 --> 00:19:40.883
So you really have to, I think, adjust to that reality and know that it, by the way, does not have any, in my opinion, material change in your odds of success.

00:19:40.942 --> 00:19:42.506
I don't think it actually matters.

00:19:42.882 --> 00:19:56.842
I think it's just, it will, if you don't adjust, like if you just assume that because you hit a million ARR and, but you're not in AI, you're not in these hot categories in 18 months, you're going to raise an A, then you're operating under false pretenses.

00:19:57.002 --> 00:20:02.089
If you adjust and you realize you're just going to have to prove a lot more to get what you used to get.

00:20:02.490 --> 00:20:09.580
But as long as you're in a real path, there's so many companies that were just not hot until again, 10 million, 20 million, 30 million, then they're super hot.

00:20:10.021 --> 00:20:11.932
Like That's just the path you're going under.

00:20:11.971 --> 00:20:14.736
So you just have to manage accordingly.

00:20:14.756 --> 00:20:18.681
But you have to be aware of where you are, where the market is.

00:20:19.382 --> 00:20:26.290
I love the idea of, one, of course, you need to know where you are within the market landscape.

00:20:26.391 --> 00:20:30.757
But two, and maybe even more importantly, you need to understand that that landscape shifts.

00:20:31.498 --> 00:20:38.391
Look back at the 2021 champions for a second and say, Those people were raising just like AI companies were raising today.

00:20:38.431 --> 00:20:42.497
They were getting all the term sheets from VCs without even asking some of them, et cetera.

00:20:42.998 --> 00:20:48.246
And many of them are looking back now four years later and saying, wow, I messed up, right?

00:20:48.685 --> 00:20:51.790
I took a crazy valuation or not enough cash.

00:20:52.211 --> 00:20:55.115
My business was not defensible in a new world.

00:20:55.215 --> 00:20:57.740
And that new world aspect is the key point.

00:20:58.359 --> 00:21:04.789
Nobody really expected interest rates to shift the way they did in 2022, or at least they weren't acting like it.

00:21:05.250 --> 00:21:13.621
But once interest rates shifted, we found out that many of the companies we funded in 21 were not fits for a high interest rate world.

00:21:14.020 --> 00:21:17.345
They were really low interest rate companies that they only worked in that environment.

00:21:17.965 --> 00:21:23.492
And so as the environment changes, the competitive landscape will shift and some of these companies that look great will die out.

00:21:24.494 --> 00:21:27.278
Is there a place where that is going to happen with AI?

00:21:27.298 --> 00:21:30.001
I cannot imagine that it won't.

00:21:30.465 --> 00:21:35.391
We're in the definition of a bubble period right now.

00:21:35.871 --> 00:21:38.094
And there is no way that this bubble doesn't pop.

00:21:38.193 --> 00:21:40.715
Now, that doesn't mean that some of those companies won't be generational.

00:21:41.096 --> 00:21:43.558
I'm not really worried about open AI going out of business.

00:21:44.259 --> 00:21:55.211
But I am pretty worried that a ton of AI companies that are raising right now with not that much differentiation, they're just growing revenue quickly because people are trying it, they're going to get found out in some way.

00:21:55.250 --> 00:22:06.327
So if you're not in the sun, if you're building a different business, that is not getting the investor attention, take that as a badge of honor and know that perhaps your time is going to come in a while.

00:22:07.430 --> 00:22:11.535
I think that's totally legit because what is a$5 billion business?

00:22:11.596 --> 00:22:12.836
What is a$10 billion business?

00:22:12.896 --> 00:22:15.641
It's not just some early growth.

00:22:15.721 --> 00:22:19.566
It is sustainable moat.

00:22:19.605 --> 00:22:20.928
You actually own a position.

00:22:20.968 --> 00:22:30.084
If you look at the$5 to$10 billion companies that have been around for a decade, let's say, they own a space and you can't have 10 companies own the same space.

00:22:30.144 --> 00:22:35.170
And so what you're having now is insane value delivery through AI.

00:22:35.190 --> 00:22:41.717
And as a result, a must-have aspect in terms of at least trying all this stuff out.

00:22:41.817 --> 00:22:45.000
You just have to try this stuff out because you're crazy not to.

00:22:45.861 --> 00:22:47.883
That doesn't mean that you're the winner.

00:22:47.903 --> 00:22:50.185
It doesn't mean that there aren't 10, 20 others of you.

00:22:50.226 --> 00:22:52.008
It doesn't mean that they stick long-term.

00:22:52.528 --> 00:22:57.733
All these other things are implied in these valuations, but only one of the 20 is going to be king sort of thing.

00:22:58.369 --> 00:23:02.595
Yeah, it's definitely worth trying out.

00:23:03.115 --> 00:23:10.001
And I mean, you know, we're showing a slide here which shows all these industries versus one another on a plotted map.

00:23:10.021 --> 00:23:13.445
So it's a scatterplot with all these bubbles, niche bubbles in industry.

00:23:13.866 --> 00:23:17.309
So you've got some places that are raising really big seed rounds at high valuations.

00:23:17.631 --> 00:23:22.435
Then you've got other sectors in startups that are raising small seed rounds at small valuations.

00:23:23.036 --> 00:23:28.162
Again, if I take a different snapshot of these bubbles at series A or over a different time period, they'll move.

00:23:28.321 --> 00:23:29.042
They always move.

00:23:29.483 --> 00:23:30.005
Landscape.

00:23:30.144 --> 00:23:36.575
But I do think that especially if you are a founder in industries that are kind of not in favor right now.

00:23:36.654 --> 00:23:49.034
So food and beverage, DTC retail, ed tech, sadly, personal products, some like, you know, there's different bubbles that are like kind of less sexy at the moment.

00:23:49.602 --> 00:23:51.463
It doesn't mean that you're building a bad business.

00:23:51.503 --> 00:23:54.126
It just means you have to be aware of the capital environment.

00:23:54.248 --> 00:23:55.128
Yes, exactly.

00:23:55.148 --> 00:23:58.472
Because if you get ahead of your skis on capital, that just kills your business super easily.

00:23:58.972 --> 00:24:00.055
It's great to be different.

00:24:00.454 --> 00:24:05.601
You know you're going to be different for longer than you want and you're going to have to survive that time.

00:24:05.641 --> 00:24:06.261
That's the key.

00:24:07.844 --> 00:24:08.104
All right.

00:24:08.384 --> 00:24:14.352
Let's also talk a little bit about dilution and then we'll get to the revenue piece, which I think is pretty fascinating.

00:24:14.392 --> 00:24:31.005
So the weird thing about this moment, pretty weird to me at least, is If I had shown this chart that we're showing now, which is just how much do founders sell in each round, if I had shown that for the last, call it, four years, five years, seed and A don't move.

00:24:31.586 --> 00:24:37.854
They're always right around 20%, a little bit higher, a little bit lower, but they just sit on that line.

00:24:38.234 --> 00:24:49.410
And what that tells me is the dilution for a given venture-backed company has more to do with the needs of the investors than it has the needs of the founders.

00:24:50.241 --> 00:25:09.229
And so founders are, you know, don't get screwed by a bad deal, but realize that the numbers that you're coming to in negotiation with your investors are driven at least as much, if not more, by the investor's ownership needs than by any sort of real estimation of how much cash you need to raise right now.

00:25:09.890 --> 00:25:10.750
You love this show.

00:25:10.790 --> 00:25:11.992
You don't want to miss the next episode.

00:25:12.073 --> 00:25:12.673
Why would you?

00:25:13.153 --> 00:25:14.737
So hit that follow button.

00:25:15.076 --> 00:25:17.059
Trust me, it's in your own best interest.

00:25:17.079 --> 00:25:18.301
It's a fallout of most...

00:25:18.786 --> 00:25:30.760
most uh portfolio construction frankly it's like i'm gonna do 25 deals therefore i need the big one to have this much multiple to return the fund assuming i invest this much which means i need to own 15 to 20

00:25:31.320 --> 00:25:51.609
you know and everything's kind of built from there i'm expecting that i will if i'm a leading of a seed round i may again do pro rata at the a but i'm not going to lead the b and the c because i'm a smaller fund and i don't have that cash so i by 15% or so, and I expect to hold it for a bit and then watch it decline over time as this company gets big.

00:25:51.911 --> 00:25:53.873
It's a standard portfolio model for funds.

00:25:54.374 --> 00:25:59.701
But I don't think founders spend a lot of time thinking about what their investors are optimizing for.

00:25:59.721 --> 00:26:03.965
And so you can use that to your advantage in a negotiation, right?

00:26:03.986 --> 00:26:12.296
If the investor is optimizing for ownership and you're optimizing for something else, control, whatever, you can play those two things if you have demand for your company.

00:26:12.656 --> 00:26:13.298
But in general...

00:26:14.082 --> 00:26:21.334
I think this also points to venture as an asset class used to be like Wild West, everyone doing different stuff.

00:26:21.794 --> 00:26:26.020
And now it's really consolidated on a, this is the venture model.

00:26:26.321 --> 00:26:29.286
And many people go through that same sort of process.

00:26:29.807 --> 00:26:31.509
Okay, let's talk about the big one.

00:26:31.569 --> 00:26:33.913
So this is upfront, not Carta Data.

00:26:34.402 --> 00:26:37.105
We're working on getting ARR data for ourselves.

00:26:37.125 --> 00:26:39.128
I hope to have more to share about that later.

00:26:39.249 --> 00:26:41.353
But this is data from Silicon Valley Bank.

00:26:41.613 --> 00:26:42.875
They're still around, by the way.

00:26:44.958 --> 00:26:46.460
Slightly different name, but they are still here.

00:26:46.500 --> 00:26:49.265
And they track a ton of U.S.

00:26:49.285 --> 00:26:49.885
B2B companies.

00:26:50.807 --> 00:26:54.152
And so this chart just shows you revenue at the time of Series A.

00:26:54.952 --> 00:27:02.865
So it used to be in 2021 that the median amount of ARR for a Series A company is just above$1 million.

00:27:04.034 --> 00:27:07.219
In 2024, that was nearly$3 million.

00:27:07.338 --> 00:27:15.770
And on the top quartile, so 75th percentile ARR used to be in 21 about$4 million, and now it's nearly seven.

00:27:16.551 --> 00:27:26.605
So again, the revenue expectations from investors for your company to raise a Series A have two to three X depending on who you are.

00:27:27.487 --> 00:27:29.410
That is a really big deal.

00:27:29.890 --> 00:27:39.221
So again, if you're walking into a conversation with a Series A VC and you're walking in there with one and a half million bucks of ARR, two things better be true.

00:27:39.240 --> 00:27:41.442
One, you better know that and adjust.

00:27:41.542 --> 00:27:44.006
And two, you better be growing really, really quickly.

00:27:45.207 --> 00:27:50.272
Because if you're not growing that quickly and you walk in with 1.5 million, Series A investors are probably going to go, no thanks.

00:27:50.794 --> 00:27:56.160
This is the part that's most confusing, even to me as someone who's on the investment side in this game.

00:27:56.220 --> 00:27:58.162
Like, you know, the...

00:27:58.690 --> 00:28:00.653
the bar has moved so much.

00:28:00.712 --> 00:28:01.934
Like, let's look at that median, right?

00:28:01.954 --> 00:28:05.721
So from 1.3 to 3 in three years.

00:28:06.843 --> 00:28:08.164
It's doubled in three years.

00:28:08.265 --> 00:28:10.808
What you need to do to raise an A.

00:28:12.050 --> 00:28:16.498
And what is, like, that can't happen magically, you know?

00:28:16.538 --> 00:28:18.340
Like, you need some input to get that output.

00:28:20.263 --> 00:28:24.830
So, and I don't know, like, you know, but you have data on bridge rounds that's not great.

00:28:24.931 --> 00:28:26.492
So I don't know if these companies...

00:28:27.105 --> 00:28:35.459
Like, you know, how is the median company getting to 3 million ARR off like a$3 million seed?

00:28:35.619 --> 00:28:39.926
Like doing a one-to-one that early is not trivial at all.

00:28:40.507 --> 00:28:41.869
No, it's really hard.

00:28:41.970 --> 00:28:47.397
And I think that this is where some of the idea around optics in venture comes in.

00:28:47.759 --> 00:28:51.765
So yes, these medians are expanding really quickly.

00:28:51.806 --> 00:28:53.808
And this is, I think, pretty good data from SVD.

00:28:54.882 --> 00:29:00.709
But what's not shown in the data is that investor expectations have changed just as quickly, if not quicker.

00:29:01.449 --> 00:29:11.941
And what's happening there is everyone is always looking, even if they don't say it, everyone is usually benchmarking against what is the thing that's going on in the venture world.

00:29:12.301 --> 00:29:18.729
And what's going on in the venture world right now is lovable going to, what,$80 million in ARR in eight months.

00:29:19.430 --> 00:29:25.509
Like, that is the kind of new expectation that of this is what great looks like.

00:29:25.949 --> 00:29:33.578
And now they're not expecting every company to look like great, but pushing great up means the Overton window of startups also moves up.

00:29:34.039 --> 00:29:40.186
So you kind of have to swim even faster just to maintain your current place.

00:29:40.567 --> 00:29:44.051
And that's something that a lot of founders are probably struggling with.

00:29:44.712 --> 00:29:48.657
What this chart doesn't show is anything about whether or not you're close to profitability.

00:29:49.153 --> 00:29:53.722
My expectation is that the vast majority of these companies are nowhere close to profitability and that's okay.

00:29:54.243 --> 00:30:01.659
I think there was a period of time where we talked about, you know, capital efficiency and unit economics growth being incredibly important at the early stage.

00:30:02.160 --> 00:30:06.710
I got to be honest, I think most times VCs are like, grow really fast and we'll figure it out.

00:30:07.617 --> 00:30:35.607
yeah that's the reality because if you if you have growth then you you at least have a shot at being an outlier like that's the other thing right it's like you're looking for outliers and it's like you don't know when that insane growth can happen but you know if it's going to be an outlier it must grow insanely at some point maybe it's at the b or c whatever but like so if you see that you're like maybe this is the point and you bet if you don't see that you have to assume that's going to happen later even if you're super efficient and all these sort of things so it's kind of like because it's a precondition to be an outlier i think it's always going to be top-valued.

00:30:36.008 --> 00:30:36.368
Growth

00:30:36.388 --> 00:30:36.930

Q2 2025: The new Series A Bar is $3M ARR—& only 20% of seed startups make it. | Peter Walker, Head of Insights at Carta

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