June 2014 Archives

The Pre-Emptive Bridge

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Yes folks, we are a bridge happy funding community. I expect that 90+% of my seed investments will require a bridge, and adjust my expectations and funds to prepare for the inevitable ask. It simply takes too long in general to get to either breakeven or good enough metrics/traction to land the next big round - I estimate now it takes somewhere between 24-26 months to get to either on average. That doesn’t mean there aren’t outliers who do it in less time; it just means that most of them won’t be outliers and will take that long. The problem is that nobody ever raises for 24-36 months - we do see seed rounds edging higher to $1.5-2M rounds over the $500K-$1M we say not too many years ago. Still it’s tough to even push $2M into 24-36 months. If nobody raises for that long, they will most likely come back to us and ask for more money.

Lately though, I have seen startups and investors work better together and do a bridge before they really need it. I call this the Pre-Emptive Bridge.

Usually what happens is the startup looks at when they expect to raise the next round, most likely a series A, and now do it well more than 6 months in advance of that time. They now know there is seasonality in investing, and take this into account, trying to now adjust cash and burn to run out in July instead of December. They try to plan such that they can go out early in a year, say January through March, and start their series A process then versus in the fall.

Then they look at what they will have accomplished by the time they want to start raising their A. Will they have good enough preparation, traction and metrics for the A?

If they do not have good enough preparation/traction/metrics or their cash will run out before they do or cash will run out in a poor time of the year, then here comes the Pre-Emptive Bridge.

They come back to us with the outlook and the plan, and we look to raise some more money to get us to any of:

1. Breakeven
2. Running out of cash in July instead of a poor part of the year.
3. Good enough traction and metrics for a decent chance at an A, and achieving those traction/metrics at a time to go for the A starting in the early part of the year.

In years past, I’ve felt that investors were always caught off guard by the bridge. Now it seems like even angels are expecting it, and it looks like many are prepared to put more money into those with a good plan and likelihood for success. I’m not only glad for this, but also for entrepreneurs to have the foresignt to look ahead that far and take steps to increase the probability of success well in advance versus waiting until the last moment.

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This page is an archive of entries from June 2014 listed from newest to oldest.

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