In early-stage investing, “series” naming has come to signal more than just financing sequencings; it has also become a proxy for the maturity of the company being financed. As a series name’s significance has expanded, however, the consensus around the meaning of that name has diminished.
At ValueStream Ventures, we prefer to think of our ideal entry point based less on the name of the round and more on company characteristics. Our target entry point is what we refer to as “Early Growth”, which tends to correspond with round sizes described as “post-seed” or even “Series A”. Companies primed for Early Growth financing have brought a product to market but don’t yet demonstrate the financial metrics to warrant a large injection of growth capital.
The investment opportunities we seek in this space typically exhibit the following characteristics:
- $1M - $3M in revenue
- Strong syndicate of existing seed investors
- At least one product in market, with operational data that demonstrates product/market fit
- On track to reach profitability – or raise a subsequent “Growth” round of $10M+ – within 24 months
- Preferred equity with a fixed price
- Total round size of $2M - $10M, with a median of ~$4M
We target this entry point because the company is established enough for thorough diligence (which satisfies our dig-deep, value-investing roots), but is early enough that capital is not yet a commodity. We can learn enough to develop a high level of conviction in the market and the product - a conviction that is crucial when leading financing rounds and taking meaningful ownership stakes in high-growth companies.
For companies, an Early Growth financing can fill the gap between early Seed capital and large $10-20M Growth financings. Large growth financings typically come with large growth expectations - it can be well worth spending an extra 12-18 months to generate additional operating data, implement a new sales model, or solidify a new product line. This extra runway is part of the VSV “playbook” to help companies raise blockbuster follow-on financings. Our Partners work hands-on with management teams to drive growth, expand the business horizontally, and ultimately prepare the company to raise an attractive growth round.