Your series A explained

Filed in archive Venture Capital on January 25, 2006

Courtesy of Daniel Primack comes Niel Robertson's, CTO of Newmerix analysis of a 'typical first round'.

"Let me start by getting everyone back on the same page. As I wrote about in Angels and demons, and with the appropriate caveats that there are exceptions, your Series A will be 3 on 3, 4 on 4, or 5 on 5. No, I'm not talking about pickup basketball or obscure French porn plotlines, I'm talking about pre-money and cash. Without regurgitating my previous post (check it out it if you'd like a deeper technical explanation of the jargon), what this really means is that no matter the amount of money you raise (3, 4, or 5 million), you'll end up giving away about 50% of the company. This means your pre-money valuation will be 3, 4, or 5M million, and oddly enough, it will be end up being paired at the same number as the amount of money you're raising.

One of things I sort of implied in Angels and Demons, but did not state directly, is that Series A rounds are almost between 3M and 5M. That goes, according to the 50/50 rule, for both valuation and amount raised. Just watch the steady stream of deals on Venture Wire and you'll see this data point over and over again. While some of the reasons for this are tied into the rest of the explanation around the 50/50 phenomenon, here's the basic thinking."

Read on - you'll love it.