Q3 2025 w/Carta: What you need to raise a Series A. | Peter Walker, Head of Insights at Carta

Peter Walker (00:00:00) :
Headcount is down, other spending is up. There was a theory for a little while there that AI companies would spend a lot less money, we're not seeing that. I think AI companies are spending as much money as they've ever spent. So one of the meta-narratives over the last eighteen months is, can I do this with fewer people? Underratedly here, the Elon example is a big deal. Looking at how X is actually running okay with fifteen percent as many people as they had before is a big shock. The number of founders taking secondary after their Seed round is twice as high this year as it was in 2021, which was the highest we'd ever seen. Do you think that there's a set of people who are becoming founders for the wrong reasons?

Previous Guests (00:00:43) :
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit.

Pablo Srugo (00:00:55) :
Do you think the product market fit show, has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders and it lets us get better guests, thank you. Peter, welcome to the show again, man.

Peter Walker (00:01:12) :
Pablo, always a pleasure to see you, dude.

Pablo Srugo (00:01:14) :
I always look forward to these. I mean, obviously, I think everybody else in Startupland. We're watching your charts on LinkedIn on a daily basis but, you know, the chance to go in depth is always welcome and especially post-GenAI. It just feels like things are changing all the time, you know? I don't know that the median valuations and that change that much. But at the ground level, on a day to day basis, it just feels like everything is in flux.

Peter Walker (00:01:38) :
It's so in flux. I think one of the things that shows this most clearly is when you look at the data quarter over quarter, in terms of venture capital rounds and whatever. There's been a steady increase the last, call it year or so. Rounds are going up, although capital is moving much faster than that but I think at the early stage and this is, I've got to imagine it's screwing with founders heads. Where they're opening up X and they're reading about the most ridiculous valuations at the highest round sizes. And it feels like every single day there's a new one or four, but then when you look at the data, yes, there's more capital being invested. But the number of rounds at Seed stage for us this year is actually going to go down. It's like, yeah, there's excitement but it's more concentrated and it feels more competitive. And so, I worry a little bit that because whatever metrics you're tracking have gotten really blown out. There's a group of founders who are building more slowly or just who used to attract a little attention and are now attracting barely any. And they're going to get either left behind or maybe they'll build without venture capital. I don't know exactly what happens to them.

Pablo Srugo (00:02:46) :
It's actually surprising, maybe we'll dive into the data Pre-Seed, Seed, and Series A. Because I'm like, at Series A. Given what's happening, which is some companies are, every week it sounds like, beating records, setting records from $0 to $10 million ARR. It makes sense to me that VC as an asset class would say, the ones that are going $0 to 10 million ARR, I'll pay crazy amounts, I'll give them all the money. The ones that are going, you know, $0 to $2, get nothing, and it's kind of that barbell. I actually could get that. A Pre-Seed or Seed, you would think on paper, best founders get all the money and then the other ones. The first time founders get, let's say, none of it. If you don't really know it's going to work. Because things, like we said, are changing so fast.

Peter Walker (00:03:24) :
So I had that same question. I was like, is this a situation where only the quote unquote best, most credible, most legible founders get funded and there's this huge desert in the middle of founders who are good but not good enough. And therefore they used to get a little money and now they get no cash. Ok, what are the things that you would prove to say whether or not this is smart or bad? One of the things you can look at is to say, look at seed stage valuations and break them up into quartiles. So you've got the lowest quartile, zero to twenty-four percent. Second is twenty-five to forty-nine percent, just in terms of the valuation, right? Small valuation to really, really big valuation and you look historically, and you say, what percentage of those companies. Based on their quartiles made it to the next round, made it to Series A? Is there a massive gap, right? And in some ways you'd expect, if a company had a really big Seed valuation. It would be more likely that they would make it to Series A. 

Pablo Srugo (00:04:16) :
Yes.

Peter Walker (00:04:18) :
For two reasons. One, maybe they had better investors, bigger investors, et cetera. Two, because they raised more money, right? Almost always when you have a really high valuation, you also raise more cash.

Pablo Srugo (00:04:27) :
I would add number three, by the way. Which is that in any hot round, there's the people that get in and the people that either didn't get in or didn't see it. And that almost always leaves this like overhang of preempt of your likelihood to get preempted just based on that. Even if your investors are the same and your delivery is the same. Just the fact that you raise a bunch of money, it's like, oh my God, how do I get, it must be hot. How do I get into the next round.

Peter Walker (00:04:49) :
Super well said. Yeah, there's a frenzy dynamic, right? Where you're like, oh, it's oversubscribed, I didn't get in, I got to get into A, I got to get into B. OK, so we looked at this data, and what it showed is that on a percentage of graduation basis. Yes, the highest valued companies graduate to Series A, a little bit more often than the other companies but it's not a massive difference. It's within a couple percentage points. The companies that didn't had a big, big change were the lowest valued companies. So the lowest quartile, if you're raising a Seed round and it's in the zero to call it 25th percentile of valuation, so on the very low end. Those companies made it to series A about half as frequently as the other.

Pablo Srugo (00:05:32) :
Wow.

Peter Walker (00:05:33) :
It's basically like, it doesn't matter, it doesn't matter that much, it doesn't matter that much and then it really matters for the companies that were raising really small Seeds. Again, I can postulate some obvious reasons why, but I was kind of shocked that the top quartile didn't have a bigger difference. It really didn't versus the second and third. It was kind of close to the same.

Pablo Srugo (00:05:52) :
And this is over what time frame? Like twelve months, twenty-four months?

Peter Walker (00:05:55) :
Yeah, so this was twenty-four months since the Seed was raised and you just cut it off then. And say, OK, how do these quartiles compare? Obviously, not every company is going to go twenty-four months. Some take longer, et cetera, et cetera.

Pablo Srugo (00:06:05) :
I mean, I definitely would have expected and I wonder if at twelve months, you do see maybe more of a difference. Because of that overhang, that heat but in any case at twenty-four months. The low quartile, you said it was half as much?

Peter Walker (00:06:15) :
Yeah, half as much.

Pablo Srugo (00:06:16) :
That's stark. I mean, that's.

Peter Walker (00:06:18) :
A really big difference and I mean, what it suggests is don't raise too little cash. Which is a weird thing. It comes back to the, you know, you and I were chatting off mic. The conversation that I'm having more than any other with founders today, is if I'm not in this super hot quartile, in this super hot AI circle, do I have a chance? There's a, I wouldn't call it fatalism but there's a definite strong negativity or sense that all the spoils are going to very few companies and If I'm building a good business. But I'm just not in this super in demand cohort. What should I do? Sometimes I struggle to answer those questions.

Pablo Srugo (00:07:00) :
Yeah, I know. One of the things that always, whenever we look at the data that always is in the back of my mind is this causation piece. I'm sure this is bidirectional but I'm like, if you look at that low cohort. Zooming in on that, you're like, there's going to be a serious percentage of people who raise the small Seed, low quartile Seed. Because that's all they could raise, which signals that either they're not that great at fundraising. They don't have that much traction. They don't have that good of an idea. There's something fundamental, which of course would mean that they should graduate at a lower rate in the future. The question is, if you're a founder and you have the option to rate. If you don't have the option, then it doesn't matter. It is what it is, you're going to do what you can do. If you have the option to raise more or less, at what point do you just. You're just taking on dilution and trying to fit this pattern sort of thing versus, yeah, actually, I could raise less and I'm still going to be the one that graduates because I'm choosing to raise less, right? That causation piece, I don't know what the answer is. I'm sure there's a bit of both, but.

Peter Walker (00:07:52) :
When you're talking to a founder and you're discussing round size. Well, first, are they coming with a round size when they initially talk to you? They know exactly how many dollars they need.

Pablo Srugo (00:08:02) :
Yeah, yeah, typically they do come with a round size. Whether that's because they know how much money they need or they think that's what they can get.

Peter Walker (00:08:09) :
Yeah.

Pablo Srugo (00:08:09) :
You know, there's that. That money's it but yes.

Peter Walker (00:08:11) :
And then when do you stress test that number? You say, like, obviously you ask, what are you going to do with those dollars? But even more than that, do you understand what the competitive environment looks like? How do you say, oh, you asked for $3 million and $3 million is the right number?

Pablo Srugo (00:08:25) :
This is the give and take. It's like what, you know, the valuation and the dilution, right? Like this is the piece that has to get answered and then it also comes down to our model. Where we're able to invest and then follow on pretty aggressively. So for us, it's also if you happen to, let's say not have raised enough money. We can kind of fix that if the signals are there, pretty quickly by just putting in more money. That muddies it a little bit. This is the part of VC that's still TBD, which is and it's different for talk about these multi-stage funds. You got to almost take them out of the picture because if you're a Bessemer, Sequoia, whatever. You got all that money, the pricing at this stage is just not, it's just not a thing, right? But let's talk for the Seed stage people with Seed stage actual size funds. You're like, somebody raising a $5 million Seed or Pre-Seed. Whatever, versus a $2 million Seed or Pre-Seed is asking for a completely different valuation and I don't buy into this idea that as long as you get twenty percent it just doesn't matter what you pay. It just intrinsically doesn't make sense to me, you know? You're going to affect your ultimate return and if you do it all the time it's going to have some sort of an impact. So that's the flip side of it, which is I know that on the one hand, more money raised, higher graduation chance. I also know that the more money you raise, the higher the post money you're going to want me to get in at and so those are the two things that pull me in kind of a little bit opposite directions when we talk about round sizes.

Peter Walker (00:09:41) :
I mean, you hit the nail on the head. There's so much obvious impact from the entry valuation price. Of course there is. It's so silly to assume that there isn't, especially for the non. Call it the ninety-nine percent of startups that are not going to be Figma and absolutely crushed. And there's still money, and good businesses to be built there. I think that part of this valuation, et cetera, debate gets to something that's very clear from the Q3 report we just put out on Pre-Seed. Which is however much you think safes are being used, they're being used way more than that. Safes are the dominant way to get money into a business. Now, anything under $4 million is dominated by safes. Where it used to be you'd start on safes and then you'd raise a Seed. But if you're raising $2.5, $3, $4 million, you'd do that as a price round. No longer, even those rounds are getting done on safes. So, there's a bit of a lack of signal there because of course there's no conversion. There's no real valuation price. You keep doing safes and people are doing lots, and lots, and lots of safes right now. I don't know if it's altogether that good.

Pablo Srugo (00:10:47) :
I mean we've talked about this before but I'm good with doing one safe, you know, and especially the Pre-Seed. But whatever, even if it's a Seed it doesn't really matter as long as it only one safe. You start stacking safes then I just don't like the confusion that that brings to, what does that actual ownership, you know, look like? When I'm giving out ESOP, what percent am I really giving? Am I giving like, you have to calculate all these pieces that obviously it's possible. like it's just spreadsheets. But, you know, I was having this conversation with the founder the other week and it's like, OK, I want to give this person whatever, half a percent. Should I give it to them pre-safe conversion or post-safe conversion, right? And we have one safe. You have multiple safes, you know, either things like that. That should be simple decisions, just you get a little bit more complicated. Because you either tell the employee you get a hundred percent when all converts are like, well, I have zero point three percent. What do you mean? You lied to me, right? Or you give them this kind of point eight so they convert to point five. It's just not that clean and it's like, what's the point of stacking safes? At some point you clean it up. We all see the same picture and we can just kind of move forward.

Peter Walker (00:11:44) :
One hundred percent. Actually, on that note about early employee hiring. I wonder how any of those conversations have changed over the last year for you. I had this hypothesis that as AI companies grew faster with fewer people. The founders might compensate each one of those early employees a little bit more. Given that they'll be a bigger part of the team, because the team isn't going to grow that fast. We've seen basically none of that. The equity grants have not gone up for early employees. If anything, they've gone down just a smidge. There's a little bit of AI, ML engineers who that's not true for and those equity grants have gone up. But in general, it feels like if the founder can drive a harder bargain, they will.

Pablo Srugo (00:12:25) :
Well, and just maybe a follow up to that. What has happened to team sizes at those different stages?

Peter Walker (00:12:30) :
Big, big, big difference. Series A, 2021, you had twenty-five people working for the company. Full-time equity holding employees working for the company. Now you probably have seventeen, sixteen.

Pablo Srugo (00:12:41) :
Do you know 2023? I know, I don't, just that's post COVID. But still kind of pre-ish GenAI.

SPEAKER_1(00:12:47) :
Totally, so that would be kind of like 2021.

Pablo Srugo (00:12:50) :
And still I'm down to seventeen, OK.

Peter Walker (00:12:52) :
Now it's down to seventeen and I think by the end of the year that'll be more like fifteen. And that's at, you know, on the day of the Series A fundraise.

Pablo Srugo (00:12:59) :
So where's the money going? Because the round sizes are going up.

Peter Walker (00:13:01) :
I just imagine it goes to compute, or to distribution, or to something else. I mean, I've heard a couple times that it just goes into the bank account. It's good to have rainy day fund, but I very much doubt that comprises the majority of the cash being raised. But yeah, headcount is down and other spending is up. And there was a theory for a little while there that AI companies would spend a lot less money. We're not seeing that. I think AI companies are spending as much money as they've ever spent.

Pablo Srugo (00:13:27) :
There's almost like a competitive dynamic. It's almost the flip side of the conversation of, you know, with AI are you going to have less people or are you going to have as many people and just do way more? And it sounds like you probably get some sort of a balance in that. But it does sound like there's, what was that? Twenty percent, almost fifteen, twenty percent smaller teams. Which honestly, without that data, I would have assumed was not the case. Mainly because if the money's there, it tends to get spent and I would assume, yes compute is obviously one big area. But people is the other obvious thing.

Peter Walker (00:13:55) :
There are currents in the fundraising market. There are meta-narratives that take over. So one of the meta-narratives over the last eighteen months is, can I do this with fewer people? We over hired in 2021, totally. I think actually underratedly here, the Elon example is a big deal.

Pablo Srugo (00:14:12) :
Oh yeah, hundred percent.

Peter Walker (00:14:14) :
Looking at how X is actually running okay with fifteen percent as many people as they had before is a big shock to a lot of folks, and they had to go back. CEOs big and small, go back into this and say, no. We don't need all these people and now that's caught on to the point where founders are reluctant to hire.

Pablo Srugo (00:14:33) :
What that signals to me is, funny to use first principles when we're talking about Elon. He's all about first principles, but it's like you could have done that. You could have tried to operate with fewer people for a long time and you kind of don't because you're like, well everybody does it this way. So it's probably the right way to do it. It just goes to show you how much value there is in just going down to first principles. Because now If you waited, you're just playing the same game as everybody else. I mean, in theory, if you just had said to yourself the same question pre-Elon doing that. You would have played a different game while everybody was playing this game. Which is, you know, an intrinsic advantage sort of thing.

Peter Walker (00:15:06) :
Sometimes you don't even realize that you're playing the game. You just don't even know. Of course we're going to hire this many people and it gets into this idea of, you know, one of the things that's true for bigger startups is that they start to do the functional benchmarking. So they say, OK, our sales and marketing spend in terms of payroll should be X percent of our R&D spend or whatever. They like benchmark the functions against each other. I think that stuff is going to get thrown out the window over the next two years. It's just going to be like, do we need this person?

Pablo Srugo (00:15:34) :
When you're doing benchmarking, you're actually baking in thinking by analogy and giving up complete first principles.

Peter Walker (00:15:40) :
Correct, correct, so on an individual company basis, it's great. It obviously makes them more capital efficient. They're building with smaller teams. Ostensibly, that means they can move faster. I think it's probably true.

Pablo Srugo (00:15:50) :
Do they pay them more? That was going to be my other question.

Peter Walker (00:15:52) :
They don't pay them more. They pay them less.

Pablo Srugo (00:15:54) :
Wow. So less equity, less pay.

Peter Walker (00:15:56) :
If you looked at versus 2022. The salaries are up, but not keeping pace with inflation. Everywhere except the obvious exception to that rule is AI, ML engineering, which is flying. Actually, AI, ML engineers over the last eighteen months on Carta. Their pay packages have risen between twenty-five and forty percent.

Pablo Srugo (00:16:15) :
Wow.

Peter Walker (00:16:16) :
Over eighteen months is unheard of.

Pablo Srugo (00:16:18) :
Yeah and we're talking big numbers to start. So it's real dollars.

Peter Walker (00:16:21) :
Yeah, those people are difficult to hire but, you know, I am not an engineer. Your average data scientist, your average marketer, like, no. It's a tough environment right now trying to get hired at startups.

Pablo Srugo (00:16:32) :
Back to the thinking differently piece. One of the things that reminds me, I had one of the founders of MercadoLibre on the show and he was talking about that dot-com time. Where everybody was just spending like crazy and they went through a part where they almost ran out of money. And then they kind of embedded into their DNA, let's say, this idea that they want to be profitable. But one of the things that was tough and just going back to your point of why it's so hard to not play the game that you're playing, or not even realize that you're playing this game like everybody else. You know, even the employees, like forget investors. Which you would normally think would be the ones to go spend, go fast, everybody's going faster, you're gonna lose. Even the employees, we're like, guys, what are we doing here? Everybody's spending on marketing, they got billboards, they're sponsoring soccer teams, they're doing real things. 

Peter Walker (00:17:14) :
Right.

Peter Walker (00:17:15) :
And we're here doing none of that. We're gonna get crushed and, you know, today none of the other companies exist. MercadoLibre's worth, you know, over a hundred billion dollars. It's so hard to do the thing that you should do, if you find yourself in a situation where everybody's doing the wrong thing. It's so hard to do the right thing, even if you think it is. Just because everybody is gonna tell you you're an idiot and sometimes they're gonna be right. And then, it sucks to be wrong when everybody told you, you're wrong.

Peter Walker (00:17:40) :
That's the problem, is that occasionally everyone was right. You have to deal with the fact that you were both wrong and non-consensus. It's cool to be wrong on consensus. Nobody cares, right? Then everybody was doing it. It's cool, but it's really hard when you chose a completely different path and a competitor raises. I think that actually brings up a good point on the fundraising side with super early startups. Which is all of these categories are getting so crowded so quickly. 

Peter Walker (00:18:06) :
Yes

Peter Walker (00:18:07) :
And I think that is a real step change from what was going on. Certainly pre-pandemic, but even just pre-ChatGPT. It just feels very difficult to find a truly novel idea and I don't know whether or not you as an investor waits. How do you think about crowded categories if you're getting pitched by a founder who's building in a space that there's already ten or twelve companies in?

Pablo Srugo (00:18:27) :
I was just telling you about one of the latest companies on the show called Decagon. Which, you know, they're doing AI for customer support for the enterprise. Started in 2023, they've raised over $200 million. Now they're worth a billion and a half. I don't know the revenue numbers, but I have to assume that it's trending, up and to the right in a very fast way. And I don't know how I would have looked at that company in 2023. Because you think AI chatbots to solve problems. You think that even if there was a gap in the enterprise, it would get filled by a lot of different players at the same time and yet you've got one that does seem to have some sort of escape velocity. So the thing that we've honed in on. Honestly, is because this is the thing that's like pre-Gen AI versus post-Gen AI. Pre-Gen AI, the biggest thing was as a Seed stage investor, is this real value creation? Is this a nice to have versus a must have? That was the big question for most companies that came to pitch.

Peter Walker (00:19:16) :
And the characteristic to judge that is ARR?

Pablo Srugo (00:19:18) :
No, like at our stage it wouldn't be ARR. It would be more, this is where it gets really hard, right? But it's qualitative things like, put it this way. If I go through diligence on a company and I start talking to customers. I'm really trying to find out how much for them this is like a must-have product. That if tomorrow didn't exist, they would be crying about it or they're just like, yeah, I love the founder and happy to test it out sort of thing, right? That was my biggest thing that I'm trying to figure out. These days, the reality is AI has put founders in a place. Where there are so many places to add insane value. No-brainer stuff and the example I always go to, the easiest one, think about voice AI. Think about how many calls are being done by humans, completely routine, you replace by voice AI. For sure that's value. Nobody can tell you that that's not value. The question has become what used to be secondary is competition. Yes, it was always a thing you'd check off and think about. But it wasn't the primary thing. The primary reason why a company wouldn't work out. Now, competition has risen to the top because you've got big tech, you've got incumbents, you've got new entrants, and you've got the foundation models. You've just got a lot of people that you have to worry about and in any new category, because the value there is so obvious. You're going to just have everybody coming at it. We don't have a secret answer to this, but we think it just comes down a lot to the ability to go to market and iterate just that much faster than the next person. Even in B2B SaaS, the modes were questionable but you could argue, look, the tech isn't changing that fast. So if I get a two year head start, the next person coming up at best will just copy me and they're always going to be a step behind. It's going to be hard for them to just like leapfrog. Now, the tech is changing so fast that any edge you might have built up. Certainly on anything that comes close to what the foundational models are doing. Tomorrow might just be erased and wiped out. And it's like, oh shit, then new Gemini 3 just does this out of the box, right? So you have to worry about that and so it's like the only thing I can think of as an edge is if, for example, you're building a vertical AI app in something fintech related. If the founder comes from FinTech, has relationships in FinTech, has built a company before, is going to make less avoidable mistakes, is going to go to market faster. Which for what it's worth is the case for the founders of Decagon, right? These are experienced founders who sold to Enterprise before, worked at Palantir before, and then you get the customer. And frankly, no matter AI, non-AI, if you have a customer, it's harder for somebody else to steal that customer from you than it is to sell Greenfield, right? I'm not saying that's the magic answer. It's just that's the only way we can kind of think about it, right?

Peter Walker (00:21:38) :
So you passed on companies recently, because you thought they were too close to the foundation models?

Pablo Srugo (00:21:44) :
Yeah, maybe less like super recently. But certainly is a thing that we think about. Yeah, where it's just like, you're building something that I don't see how you maintain that edge and maybe there's not enough workflows, integrations or business logic specific to your use case. Yeah, that puts you in a place where, you know, tomorrow the foundation models will just kind of wipe it out.

Peter Walker (00:22:06) :
Yeah, it's the age-old, like, will Google build this, is now, will Gemini build this, or will OpenAI build this? So I guess still Google.

Pablo Srugo (00:22:14) :
That's right.

Peter Walker (00:22:15) :
But like, unique foundation model. We'll build this, or eat the use case and then there are things, you know, OpenAI released a specific verticalized note-taking thing, and Granola is still crushing.

Pablo Srugo (00:22:26) :
Yes, that's right.

Peter Walker (00:22:28) :
So, it's so weird when it works and when it doesn't, and the specific reasons why. But I do hear a lot of founders who are spending a lot of mental cycles trying to figure out how do we get embedded enough in organizations that we benefit from model change rather than get scared of model change and that I think is really hard. I mean, even now. I'll be honest, I thought a couple of years into this AI revolution that you'd be able to trust the ARR numbers. In that they've gone through a renewal cycle that is sticky enough and I think for some companies that's true, but there's still so much, the idea of switching costs are so much lower, et cetera. I know at Carta, we're not a gigantic company but we're a pretty big late stage one on the private side and we test out a ton of stuff.

Pablo Srugo (00:23:18) :
That's right.

Peter Walker (00:23:19) :
and won't keep most of it, because it's just like this period of experimentation.

Pablo Srugo (00:23:26) :
We have tens of thousands of people who have followed the show. Are you one of those people? You want to be part of the group. You want to be a part of those tens of thousands of followers. So hit the follow button. Just back to that ARR piece, I think that's another piece that's different pre-Gen AI and post-Gen AI. I think pre-Gen AI, it was for sure the way you sold, right? It was per Seed per month sort of thing. That's just, that was the thing and yeah, maybe you had some transaction on top. And if it was your marketplace, it was different. But you saw B2B SaaS and enterprise, that's how you saw it. I think now that even is in flux. Some people are selling by Seed, some people are selling by agent, by transaction. And then there's a new class of tech startups that I'm seeing. I met this company recently called 10X and it's basically an AI first MSP. Managed service provider, but they're not selling AI to MSPs. They're just becoming an MSP themselves. That's AI first growing insanely, insanely fast. I was talking about zero to forty in a year. It's just ridiculous but, you know, my point being that it used to be that if you start a services business. It's by definition non-venture investable. It's non-venture scale because you're going to fall into low margins, hard to scale. This guy starting an MSP, which is by definition a services business. But because it's AI first, the argument is I'll be able to scale it and I'll have better margins. And even that is a new way to deliver value to the market. So this is what I mean by in flux, right? There's so many pieces that are still being defined and it's TBD, you know, what the end outcome is.

Peter Walker (00:24:47) :
Yeah, it's got to be confusing. OK, so here's a conversation that I've been having with founders lately, which I don't actually know if I like this conversation. so you can just say pass if you don't want to talk about it. I'm in San Francisco. Do you think that there's a set of people who are becoming founders for the wrong reasons?

Pablo Srugo (00:25:07) :
You know, honestly. Probably, I wouldn't say that I'm meeting as many of them as I was in the crypto high 2021 era, but I.

Peter Walker (00:25:18) :
It's been worse before?

Pablo Srugo (00:25:20) :
Yes, it has been worse before but that is such a classic thing. Where you have this memetic type of behavior, right? Where you see, you see the massive rounds, you see the obvious use cases. You're like, I'm such an idiot for not starting a startup. If you star one, for that reason and maybe you get some early stage success, but for the vast majority of even the successful ones. There's a ten year journey. So, you know.

Peter Walker (00:25:47) :
What I think most people don't realize is even for the unsuccessful ones, it's a long journey. 
.
Pablo Srugo (00:25:53) :
That's true, yeah, yeah, that's true. Failing fast is not that easy.

Peter Walker (00:25:55) :
No, failing fast is super hard and people, if you're going to be a founder, and you're not, quote unquote, the tourist founder. You're going to keep smashing your head against the wall on it for a while. Even when through all most sensible mechanisms, you should probably have shut this thing down already. There are hundreds and hundreds, and hundreds of founders on Carta, who will never raise another venture round, but they are still three or four or even five years away from shutting the company down and it's a real struggle. So we're getting back to the original question. The reason I ask is because there's usually this early stage startup thing is like, it's been glorified a little bit and I think that's great. We need more founders, but there's also a bunch of people who are kind of LARPing as it or interested in it because it seems cool. It's a very easy way to waste five years, if you don't actually feel incredibly called to the thing that you're building.

Pablo Srugo (00:26:46) :
The data is interesting, because the data. I mean the data is data, it's not debatable but sometimes as a result of the data you get signal and then that signal changes the data itself. And now it becomes noise, and I think round size is an example that. Where at first, you probably have the bigger round sizes going on average to the people that have the better kind of ideas. And then once people realize these are the sort of things that raise money, right? Then that attracts people to say, I'm going to build that sort of thing and I'm really good at telling a story of which there's a lot of people that are really good at telling stories. I don't mean like fraudulently. I'm just saying they have that skill set. So now the money's going to somebody who's telling the story that sells. Does that mean it translates into a massive company? You know, many times not and we saw that in 2021, and with the crypto stuff. There were some really good storytellers telling you something that they believe to be clear. I'm not saying they didn't believe it, but ultimately just went nowhere, but might've raised $5, $10, $20 million.

Peter Walker (00:27:40) :
Right, so how do you suss out who is a great founder and who is a great fundraiser? And how are you going to back. Is one really indicative of quality and the other? I think there's a ton of questions on that and then the last data part on this topic is, one of the very consistent patterns that we're seeing right now is, every quarter, like clockwork, the time between these early stage rounds is getting longer. If that's the case, one year, yeah, ten years signing up for. I mean, if everything goes right, you're talking 1fifty

Pablo Srugo (00:28:13) :
You're saying the time between what? C to A is getting longer?

Peter Walker (00:28:16) :
C to A is getting longer.

Pablo Srugo (00:28:17) :
Wow.

Peter Walker (00:28:18) :
A to B is getting longer. B to C is getting longer.

Pablo Srugo (00:28:21) :
How does that align with these insane growth curves that we're seeing? What's the?

Peter Walker (00:28:26) :
One hundred percent. I feel like it's a tale of two cities there where. 

Pablo Srugo (00:28:30) :
Right.

Peter Walker (00:28:30) :
Look at RAMP. I think RAMP has raised four times in 2025. They have in one calendar year, they're going to raise a quarter right now and everyone kind of sets their watch to these big rounds and big names that are being raised. But then underneath it, there's a whole host of companies who are, again, not getting looked at anymore. Because their growth rate isn't in the upper decile anymore. Because that growth rate has been, upper decile has been redefined. It's a very, very clear barbell but when you average the medians together. Right now on CARTA, the median time between A and B is close to a thousand days. It's a long time.

Pablo Srugo (00:29:07) :
Three years?

Peter Walker (00:29:08) :
Two point seven years or so.

Pablo Srugo (00:29:09) :
What's the Seed to A median?

Pablo Srugo (00:29:11) :
Seed to A is much closer to the two year mark. It's just above two years.

Pablo Srugo (00:29:16) :
Do you know the median ARR by chance at A?

Peter Walker (00:29:18) :
At A, we don't have great data on median ARR. The last stuff that I saw from Silicon Valley Bank had median ARR at A is just under $3 million.

Pablo Srugo (00:29:27) :
Wow.

Peter Walker (00:29:28) :
But again, in some ways the absolute number there matters a lot less than the change, right?

Pablo Srugo (00:29:34) :
Yeah, the growth rate.

Peter Walker (00:29:35) :
The growth rate matters a ton more, which ties into the original question that we were asking. Which is how much money are you going to raise? How much money is in part a function of how long you want this money to last? And I think that period of time is, whew, it's all over the place. Which also brings up a ton of bridge rounds and extensions, and like, pick your investors wisely. It's going to be a long road.

Pablo Srugo (00:29:57) :
Because your bridge round data, I remember not being pretty and I assume that hasn't changed a little bit. But not materially or not at all?

Peter Walker (00:30:03) :
Not materially. I think there's a group of investors these days who are kind of baking the bridge round stuff into the original basis and they're just saying, look, we don't know we're going to get this right. We're going to reserve some capital for these bridges and extensions in a way that we would have reserved capital for follow-on's. I don't know if that's a great strategy, but I think it is happening more.

Pablo Srugo (00:30:22) :
Bridges are such a tough, the dynamics of them are just so hard to grapple with. Because there's a part of me that would love to just go to a founder and say, look, I love you, I want to do this round, it's this much. If you're doing well, I've got this much money for you. If you're struggling and like, whatever, I'm just not bridging. I would love to be able to do that, but it's just not real. First of all, to a founder, that's just a worse value proposition. Cause they're like, well, I don't know what's going to happen. I'd much rather partner with the other VC who might bridge.

Peter Walker (00:30:53) :
Screw you. What do I need word dollars for? Yeah.

Pablo Srugo (00:30:55) :
So that's the first part and the second thing is, well, you know, kind of depends. If we're struggling because we don't have PMF, we don't have traction, we don't nothing. OK, I get it but if we just took six to nine months to build the thing when we thought we'd take three. So we just burned six months. Then when we put it out, we're on a track, but we're not at Series A yet. You're just going to let it die? Which I wouldn't. No, of course not, right? It just it's a tough, nuanced place. I guess that's the grayness of the gray scale of early stage.

Peter Walker (00:31:22) :
Pablo, are you a solo GP?

Pablo Srugo (00:31:23) :
No, no, I'm not.

Peter Walker (00:31:25) :
Okay, that was a setup question. I knew that, when you are making a bridge decision. Do you have the other partners in the fund to make that decision for you? So that's a little less emotional.

Pablo Srugo (00:31:35) :
No, I don't have them making it for me but they are part of the decision making. We treat it like any other. The difference is, the thing is what we talk, like pro rata into it is kind of okay. That's just kind of going to happen. But if we're going to put, you know, something close to our first check or more than our first check for sure. Then it becomes a, yeah, it's kind of a team decision. But yes, there is what you're alluding to. Which is, there's kind of that, that's some cause fallacy, there's loss aversion. There's all these things that play into it.

Peter Walker (00:32:01) :
Because I'd be super worried that I'm just doubling down not to make myself feel bad. Trying to trust my initial judgment, or I'm clouded by the sunk fallacy, et cetera. I'd be worried about that all the time and I think I'd probably over back founders that I originally believed in. Because that makes me feel better.

Pablo Srugo (00:32:19) :
Yeah, I think that's part of it. But you also by the way, you do worry about the real reputational risk of. I mean, if something's just not working, it's not working. But these ones in the middle, where you're like, I'm really not sure and if it was a brand new deal, and I'm being honest, I'm like, I wouldn't do it. But if I don't do it, this founder is going to tell like thirty other founders, I killed his company and or her company, right? And it's, yeah, is that good for the firm? Is that good for this fund? 

Peter Walker (00:32:43) :
Is there a difference based on where you are? Whether or not those founder networks are as strong or is it like, look, founders at any place. Whatever city you're in are going to talk to one another and kind of have Judgement.

Pablo Srugo (00:32:56) :
I have to imagine it depends. It depends on, some networks are probably stronger and more ruthless than others.

Peter Walker (00:33:01) :
Well, counts as bad behavior is probably different in different places a little bit.

Pablo Srugo (00:33:05) :
In a long enough term the only thing that's like the seed stage has is just reputation, you know? That really is the thing and so you. I think you have to worry about that to some extent. You can over worry and then now you're just about fun and it's not gonna work, right? But that has to be part, I think of your equation. When you're deciding how to play the game. Because you can't just go around you know being so draconian that you're burning founders and burning relationships. And by the way, you're going to make mistakes because some of these founders, you probably should have backed.

Peter Walker (00:33:32) :
I was going to maybe change topics to one last piece of data. This actually isn't in our Q3 reports, but we were just chatting. I'd love your feedback on it, or I would love what you think it means. So the data I'm talking about is founder secondaries. Interesting thing that's been going around the ecosystem right now. I'll say up front, the number of founders taking secondary after their seed round is twice as high this year as it was in 2021 Which was the highest we'd ever seen. What do you think of that?

Pablo Srugo (00:34:04) :
That means they're taking it at A or A or B or C or D or whatever?

Peter Walker (00:34:07) :
No, their most recent round was seed.

Pablo Srugo (00:34:10) :
Oh, wow and they're taking some secondary. I, you know what, I'll tell you this. It all depends on the amounts. It all depends on the amounts and the situations. I actually have no problem at all with secondaries and I've told, especially some like first time founders. Because a lot of times you don't have as many as first time founders and I've been in their shoes. They, it's almost like a signal of pride of they're like paying themselves way less than market living on complete crap and I tell them, I'm like, look, there's obviously something to that. And to the extent that you actually don't have a lot of money, it's definitely a thing you might want to do. And many great founders have done that. But also know this. If your startup doesn't work out or is in trouble. No one cares that you've paid yourself little. You go in and you're like, guys, you're really not going to do this, let's say, bridge round. Look at what everything I've put into it. Look at the fact that I pay myself $50,000 and they'll be like, you should have paid yourself $120,000 then. I got what you paid, $200,000, whatever market is, right? That has nothing to do with me, right? So if you don't take care of yourself, nobody will. That's the first thing. The second thing is, you know, the numbers depend on where you are in the world. So it's kind of hard to say that, but I'm just going to make it up. If it's series A, you're taking a million off the table. I'm like, okay, that's not bad. At series B, you're taking, you know, four. Once it gets beyond 10, then I'm like, your startup better be truly on a path, in which case, you know, by all means, go ahead and do it. Because it's on a path. But if you're taking a million or two earlier, I don't really care and if we're talking about Seed stage, and you're taking quarter million, half a million. At that point, I'm actually telling you to do it. It's certainly a series A. If I'm advising a founder, and I'm like, you're raising a $10 million A, and you haven't yet made money before, let's say. Take a million off the table. Why not? If you can, why not, right?  It's only going to align us more. It's a mixture of what percent of that round is it, let's say ten, twenty percent, and what's the impact to you. And I guess what's the guiding principle here is if what it's doing is freeing you economically, paying your car, paying your house. Maybe you need a nanny, whatever, like you don't worry about the day-to-day expenses. I mean, that's great because here's the reality. LaVinci on the other side has a portfolio. So when they're like, oh, swing for the fences, go for it, try and grow faster. Frankly, their risk is not your risk. If you fail, it sucks for them, but they got twenty other companies, right? And so you doing that secondary to me is, getting you closer to that where it's like you still have one of one but at least you don't get left with zero, I think that's good. I think when the founder wants to get a payday that says I never have to work again, I think that's fine if the company's on that trajectory. I think it's almost never that trajectory at seed or A and so then it becomes challenging at B maybe, at C, yeah sure.

Peter Walker (00:36:51) :
I think I'm ninety-nine percent in agreement with you on both the value of a founder secondary to the founder on de-stressing economic pressure. I don't really believe in the idea that economic pressure at that stage is going to radically change the investment that you have in the company. But it can just make your life a lot easier so that you have more brain space to think about the next growth phase. Which is totally fair and again, I'm also in agreement with you that is it a little bit surprising occasionally when you see a Seed stage number and you're like, oh, it's a pretty big number for seed. Yes, but there's a ton of different situations and some of these seed rounds are massive. So as a percentage of the round, I think it makes sense. I do think the one hang up that I have little bit is that while we're seeing close to double the amount of founders taking something out at Seed. Almost none of them have employee participation. 

Pablo Srugo (00:37:47) :
Right, right, yeah.

Pablo Srugo (00:37:50) :
Whereas in Distinction, the late stage has actually gotten better for employee liquidity. Because of these employee tender offers that are happening in lieu of going public for some of the bigger customers. Obviously, it would start with the founders, then maybe trickle down a little bit to the employees. But we're just not seeing that at all and I wonder where that goes.

Pablo Srugo (00:38:08) :
My guess, just hearing that right now would be like if the secondary is a million, let's say, right? Because we're talking about Seed, and you let it trickle down to the employees. They're going to get $10k, $30k, $50k and it's almost like if you don't trickle it down, the employees might not even know. Like it might just kind of happen and they don't even know that it happened. And they're like, OK, it's just, If you open that door, then they're like, oh, you just took like half a million bucks. You know what I mean? And I took ten. Whereas at Series A, I mean, at Series C or whatever, if there's $50 million, $100 million in secondary, which in the massive rounds there are, everybody can have a true payday. The cost benefit at seed for the board and the founders. that might just not really get there, though it is admittedly unfair. Some shareholders get it and the rest don't.

Peter Walker (00:38:56) :
I'm not saying that founders and employees need to have the exact same access to liquidity. I think that would be silly. One of these parties does put in more than the others. As this whole new dynamic around the way money works in early stage startups I am recognizing the fact that just employees are going to get mostly left out of this equation until you get to be later stage. And if the timelines are what they are and the hiring market is what it is, like, you know, there's a little bit of like getting caught in the cracks of how this ecosystem is changing that could apply to startup employees more than it applies to the other two major participants of investors and founders. I don't know. Maybe I'm just speaking as a startup employee.

Pablo Srugo (00:39:40) :
No, I mean, I think it's a fair point. One thing I wanted to chat about, just again, changing topics is just make sure we get this on record. Can we go through the medians of the top quartiles, low quartiles, pre-seed, seed, series A, conversion rates, just the freshest data on all that stuff.

Peter Walker (00:39:54) :
You got it, man. Okay. So seed stage, if you are rate, or sorry, let's start pre-seed. Obviously, people have different ways to define this. The way that we look at it is we're saying you haven't raised the price round yet. And then we're looking how much have you raised on safes? And what is the valuation cap of those safes? If you look on a median basis, if you're raising a million dollars today in the US, the median valuation cap is still about $10 million. So a million raised on a $10 million cap post money means you sold about ten percent of the business in that round. Obviously, pre-Seed is now anywhere from like $500k to $2 million or even $3 million. I don't know. There was an A16Z company recently that raised a $20 million pre-seed. These names are just names. But I do think that it's important for founders to recognize that it's a very clear step up. As you raise more money on safes, your valuation cap is going to go higher because of the dilution mechanism. You don't want to over dilute on safes. I also don't want to paint this as an easy decision. If someone's offering you money that you absolutely need for your business, but they're trying to take twenty percent of your company instead of 15, that's not a good reason to say no, right? You don't kill your company because of dilution, but don't also get screwed by bad deals. It's kind of a balance between those things. Seed stage. Right now, what we're seeing is that seed stage is about $16 million pre-money and $3.5 or so million raised in the round. So you add that up and you're talking about a $20 million post-money valuation for Seed stage for companies on Carta. That is historically very expensive. As expensive as it's ever been, really. Not adjusting for inflation. You're getting good deals. Again, fewer of those deals than you might think, a little bit, but good deals all around. Series A, the median is $50 million pre-money and raising about $10 to $11.

Pablo Srugo (00:41:44) :
So $60 million post is a good benchmark for Series A and has that gone up or mainly seed went up but A stayed more stable?

Peter Walker (00:41:53) :
No, A's been going up pretty consistently since, call it like the end of 2022, beginning of 2023, where it bottomed out. Like 2023, same number at Series A was $34 million. Now it's $50. So it's been a big shift. It's actually just peaking just about where it was in 2021. It's about equal to where it was in 2021 right now. But there's been inflation since then. So it's on a purchasing power, it's less, whatever. Series B is not back to its former heights. In 2021, the peak was like $160 million. Series B, that's pre-money. That was very expensive. Now it's about $120, but it's been going up pretty consistently quarter over quarter.

Pablo Srugo (00:42:31) :
And what are the graduation rates between like pre-Seed to Seed, Seed to A?

Peter Walker (00:42:35) :
Pre-Seed to Seed graduation rates are really hard to figure out. Because one, we don't know exactly if you're done raising on safes. Just know that you raised on one safe, you can just continually roll on that and so it makes picking a date hard. What I'll say is that if you're raising a pre-Seed round of any size, so for instance, if you raise a million dollars on safes. The percentage of companies that will get to an actual priced round after that is probably about fifty percent, maybe higher. Seed to A in two years or less used to be at the boom times. It was forty percent of companies did that. That's super fast. Then it slowed down a lot and now it's kind of the latest data that we have. I'm pulling it up right now on Seed stage. The latest data has it at twenty percent of companies got from Seed to A in two years or less. So, that's not very many. Of course, that's not all companies that will make it to A. You'll probably look at that graduation rate and say something like forty percent of companies will get from C to A. And then from A to B, it's a bit better. Again, you could say probably in the end, it'll be a fifty graduation rate. But right now, after two years, it's more like twenty-five, twenty-five to twenty-eight. So, a little bit easier. And this makes sense. Once you get into B's and C's in later stages, the percentage of companies that actually never graduate gets a little bit smaller over time.

Pablo Srugo (00:44:03) :
That makes sense.

Peter Walker (00:44:04) :
And there's a ton of bridges, and random stuff going on in between those. It's all super messy.

Pablo Srugo (00:44:08) :
What's the latest on if you raise a bridge, your odds of graduating become whatever?

Peter Walker (00:44:13) :
So this is actually weird data. I used to say that bridges are bad signal. Because I think it's pretty obvious they are. You're not bridging because you're doing so good, usually. Weirdly, in the last year, there's been a couple quarters where the companies that took a bridge, more of them have made it to the next stage than the companies who haven't taken a bridge yet. It's very new data, right? This is only about a year or so old and what that shows me is that these stories about companies that raise Seed stage, and then they're just flying so fast that investors are trying to get as much money into them as possible before the A. That is happening, right? The preemption rounds, those are really real in a way that they haven't been in a long time.

Pablo Srugo (00:44:55) :
How does that tie into the bridge? It's not immediately clear.

Peter Walker (00:44:58) :
It used to be that I would say bridges are not a good signal.

Pablo Srugo (00:45:01) :
Oh, it's more of a preempted type bridge. That makes sense, cool, man. Well, dude, it's a pleasure speaking with you as always.

Peter Walker (00:45:10) :
Absolutely, man. We'll do it again soon.

Pablo Srugo (00:45:11) :
See you next quarter, dude.

Pablo Srugo (00:45:13) :
Wow, what an episode. You're probably in awe. You're in absolute shock. You're like, that helped me so much. So guess what? Now it's your turn to help someone else. Share the episode in the WhatsApp group you have with founders. Share it on that Slack channel. Send it to your founder friends and help them out. Trust me, they will love you for it.