The bar for Seed Rounds keeps getting higher

It’s no secret, so we may as well all talk about it – the bar for Seed Rounds is the highest it has ever been, and it looks like it’s going to continue to get higher. Rather than spouting off a lot of my own opinions about Seed rounds, I thought it would be better to highlight three data points and do a deeper dive into each. Let’s start with this one:

“In 2010, 10% of companies who raised a seed round were generating revenue, in 2017 that number grew to over 50%” (Source)

First, I’ll start by saying, yes – of course you can still raise a seed round without revenue, just look at the data above, 50% of startups are doing just that. Still, revenue has gone from being something investors don’t care about at the Seed stage to something that many now do want to see. 

What you can’t really see in the data here is how many startups in the 50% that didn’t have revenue were started by second-time founders. It is pretty well-known that if you have a nice juicy exit, you can raise money for your next company, at a nice valuation, and without revenue. 

Putting my investor hat on for a second, this makes a lot of sense. If I can invest in a founder that has already proven they can build, grow, and exit a startup, I can imagine them doing that again. With a first time founder, it really is unknown, so you’re taking more risk as an investor, and things like early traction/revenue/customers can help to mitigate that risk.

What does this mean for your startup?

This means that you’ll need to do a little extra homework if you don’t have revenue to make sure you’re talking to firms that have a track record of investing in pre-revenue companies at the Seed stage. 

Of course this research is relatively non-trivial since many companies don’t publicly announce if they had revenue or not when they raised their Seed Round. So if you can’t figure it out beforehand, just ask the investor directly. At the end of the day, you want to make sure you’re a good fit for their firm and if existing revenue is a deal-breaker, better to find that out sooner.

Remember, investors will take meetings with you if you’re a good fit or not. They want to learn the market and possibly learn something about you that could even help one of their other portfolio companies. By doing your own homework or just asking directly, you can make sure you’re spending your time with someone who could invest in your company now, not just when you have revenue.

“Most investors and entrepreneurs I speak with agree that the new seed round looks like what an A was 3 or 5 years ago.” (Source)

This is something I’ve heard over and over again, the A Round of yesterday is the Seed Round of today. However I think this often gets misunderstood. The idea here is not that investors expect you to have a perfect repeatable process when going out to raise your Seed Round.

Instead, the size of the Seed Rounds today are as big as A Rounds were 3-5 years ago. It’s not all that crazy to hear of startups raising a $3.5M Seed Round, and $2M Seed Rounds have been all the rage and that trend doesn’t seem to be going away.

What does this mean for your startup?

There are two takeaways from this IMO:

  1. If you go into your Seed Round trying to raise $500k or $750k, it might sound like you’re going too small to build something big. This might also look a lot more like a friends and family or angel round so VCs could be less interested in a round this small.
  2. While you can likely raise a bigger Seed Round, be careful, the more you raise the higher the expectations will be when you go to raise your next round. Raise what you need with a nice buffer but don’t just raise as much as you can as it could set the bar unrealistically high when you go out to raise again.

Keep this chart handy

This is a great chart to print out, memorize, or tattoo on your arm for future reference. While hard and fast rules like these are proven wrong all the time, they are good general metrics to keep in mind.

Like I said in #1, you can raise a Seed Round without revenue so don’t let this chart freak you out. That being said, if you want the greatest chance of raising a Seed Round and you do have revenue, this can give you a good idea of where you stand.

What I really like about this chart is that it breaks down the milestones by the type of company you’re running. It can be easy to default to talking with founders you know and like, but who might run completely different businesses.

What does this mean for your startup?

If you’re running an enterprise SaaS company, talking to a founder running a consumer-focused app is still valuable, just know that investors are going to judge each of you differently.

Also, it’s important to know that if you’re a SaaS company with $5k in MRR, know that every investor you’re talking with has likely seen plenty of companies at the same stage at $50k MRR so you’ll really want to make sure you highlight all the other amazing things about your companies beyond the revenue.

The best way to use this chart isn’t to look at it as numbers you need to hit. Instead look at it as a guideline for numbers that investors are seeing so you can see things from their perspective as well. If you’re a Seed Stage SaaS startup trying to raise your A Round and your MRR is $60k, know that you’re at about a third of what most investors are seeing. It doesn’t mean it’s impossible but knowing how you stack up can help you decide when you should get out there and start fundraising.

Fundraising too early isn’t necessarily a bad thing, just know that next time you talk with that investor you should have made some meaningful progress since you’ll be establishing a baseline.

Phew! Well if you made it this far then you clearly are interested in absorbing as much information as you can about understanding the dynamics of Seed Rounds in 2018. First – right on! The more data you have the better.

Second, remember, that this information can become stale quickly. If you’re reading this post and it’s 2019, be careful, the numbers will have likely changed. All data has a shelf life and when it comes to understanding the dynamics of raising a Seed Round, getting the freshest data is critical because investors spend all day every day studying this, so you want to know as much about how they’re thinking as you can.

Thanks for reading and now I’d like to pass the mic to you. Is there anything you’d like to share about the current state of Seed investing, either as a founder or investor?

As a startup founder, it’s easy to prioritize the wrong things

If there’s one thing that is consistently true across all startups in every industry (IMHO), it’s the fact that as a founder, you won’t be able to get everything done that you want to each day. Sure, you can read books about time management, use a nifty app to manage your to-do list, or schedule out every hour of your day…even still, there is honestly just too much to do and too little time.

When we first started our company, I was confident that with good time management skills I could get everything done that needed to be done in a given day. Six years later I can tell you, that just isn’t possible, instead what you have to learn is how to prioritize the most important things to get done each day, and focus on those things.

Here’s the kicker. Some of the least important things can be checked off your list faster and make you feel like you’re getting a lot done. The problem is, getting a lot done but missing what really deserves your attention means you’ll likely keep falling behind finishing the things that really matter.

So I thought it would be interesting to put together a list of things either I have prioritized myself or seen other founders prioritize that really shouldn’t be a priority. 

Things that aren’t as high of a priority as you think:

  • Posting on Twitter/Facebook/Instagram
  • Coffee meetings (with non-customers)
  • Startup conferences/events (caveat – if you sell to startups then this could be a priority if you think you can close deals because of it)
  • Testing out new tools to help you stay organized
  • Updating your financial model (still important but not a top priority)
  • Writing investor updates (also important but shouldn’t be prioritized over customers)
  • Getting to Inbox Zero (honestly – this can be a huge waste of your time)
  • Giving advice to other founders (this is a great thing to do but don’t prioritize it above important things for your startup)
  • Going to relevant MeetUp groups
  • Applying for startup awards
  • Attending startup award events
  • Meeting with advisors (important, but not more important than getting something critical done for a customer or prospect)
  • Networking “Happy Hours” 
  • VC Events (one of your VC firms might hold cool events for their founders. This is awesome and you should go, but don’t prioritize it over things that really matter to your business)
  • Anything related to accounting (accounting is incredibly important but can take up a lot of time, don’t prioritize it over something that will bring money into your company)
  • Reading startup blogs (like this one)

So what is a real priority? 

Over the years I’ve learned to prioritize current customers customers, prospective customers, product, and our team. I would always rather prioritize getting back to a customer or a prospective customer than writing an investor update or having a coffee meeting with someone I think is interesting. I also prioritize anything I can do to help our team, whether it’s talking about a product issue our engineers are running into or helping a team member who’s having a hard time.

In short – your startup should be doing everything it can to make great products, keep customers happy,  keep bringing on happy customers, and keeping your team running like a finely tuned machine. Yes, you should be writing investor updates, finding tools tool to help you stay organized, winning cool startup awards, and updating your financial model…but don’t do any of these things if you have mission critical tasks related to customers, product, or team.

It can be easy to get addicted to checking things off a to-do list, and I get it, it feels good to end a day and see that you checked everything off. In the early days, I felt a sense of great satisfaction when I could check everything off my to-do list. Now, I could care less if I check everything off my to-do list, what I care about is prioritizing correctly and getting the stuff that matters, done, the other stuff can wait.

3 things I wish we knew before we raised our first $1M

When we first started our company, raising a million dollars felt impossible. Sure, we read about it every single day on Techcrunch but the path that those startups took to get funding was a mystery to us. I know we aren’t alone here, when you’re first starting a company, you dream of raising a million dollars, getting an office and hiring the initial team. It feels impossible in the early days, or at least it did to me.

Fast forward two years later and we had over a million dollars in our bank account. We had raised a little more than $400,000 going into Techstars and after demo day we set out to raise a $500,000 round, which we over-subscribed and quickly found ourselves at $1,000,000. 

It was a surreal feeling, I took a screenshot of our Chase bank account with over a million dollars in it – wow. If/when this happens to you, it’s easy to feel like you’ve made it. That far off goal that you dreamed of happening one day actually happened. You’ll quickly realize that it is actually the exact opposite, this is where it starts to get really hard.

Fast forward to today and I can tell you there is a lot I wish I knew before we raised our first million. Unfortunately I don’t have a time machine, and if I did I wouldn’t go back to that specific time, I’d go somewhere cool like ancient Egypt – wouldn’t you? What I can do now is share what I wish we knew before we raised our first million, so let’s dive in.

Here’s what I wish I knew before we raised our first million.

  1. Hiring is hard and takes longer than you’d expect and you’ll likely do it wrong at first. I thought that we’d be able to scale our initial team within a month or two after raising our Seed round. I was very wrong. It took about six-months in total and included hiring and firing someone who we should have never hired in the first place. If I were to do it all over again I would have started interviewing a lot earlier, and asked for a lot more advice from other founders that had done the same, so that when the money hit we could put it to use and put our foot on the gas right away. (Want to learn more about hiring? I highly recommend this article by Mark Suster)
  2. Titles matter to people a lot more than you’d think. When we started our company, everyone told me, titles don’t matter – don’t worry about them, all that matters is that people work well together and get shit done. So, early on we gave people bigger titles than what they had at their previous job. This back-fired, we gave an individual contributor a manager title and literally the next day her attitude changed. Within a week she had moved a huge chunk of her work onto our junior developer. The same thing happened with another early hire. We gave him a Director title and things changed, quickly, and not in a good way. Titles do matter, they might not matter to you, but they do to the people you hire so don’t just give away titles, people should be qualified for, and earn, the titles they get. (Want to learn more about titles? I highly recommend this article by Marcela Sapone)
  3. You likely don’t need all those advisors. A lot of people told us that our company would look better to investors if we had a badass advisory board. So by the time we raised our first million we had half a dozen advisors. Now I’m not saying there’s anything wrong with having advisors, but unless you have clear goals and deliverables they are just another vanity metric. After raising, I realized that we could benefit from having some advisors but we had to really find a need first rather than just picking advisors that were people we liked and we thought would look good on a slide deck. (Want to learn more about advisors? I highly recommend this article by Jason Calacanis)

Why I’m not a fan of convertible notes

When we first started our company, convertible notes were all the rage, and they were pitched to me like this – “Convertible notes are cheaper and easier than priced rounds.” Then I talked to a friend who had raised $1M+ on a note and was paying a pretty penny in interest now that the note had reached maturity and he hadn’t raised his next round. He said, “I wish I never had raised using a note, an equity financing would have been a lot cheaper in the long run.”

That stuck with me, and it also inspired me to do a deeper dive into the differences between convertible notes and priced rounds. What I learned is that, at at early stage (i.e. raising your first $2M or less), the idea that notes are “cheaper” and “easier” doesn’t really pan out. When it comes to all of the complexity that people attribute to priced rounds, I actually found the opposite to be true, notes add more complexity, the complexity just comes into play later on down the road…which is usually the worst timing.

I think the reason why founders get tricked into thinking that Convertible Notes are cheaper is because the upfront costs might be lower, but if you do the math, the end-to-end process can actually be more expensive than raising a proper equity round. 

You may have heard that it’s cheaper, faster and easier to do a convertible note, but the fact is that convertible notes are going to end up costing the company approximately 25% MORE than an equity deal.  The reason for this is that when the note converts, then it converts into EQUITY.  That means that the company pays twice for the legal: once to do the note and another time to do the equity.  So if a convertible note cost $2500 in legal fees and the equity deal cost $10,000, then the convertible note all-in is going to cost the company $12,500.  Why not just do it right in the first place and put all that money to work for the company?

(Source – Rockies Venture Club)

Another thing I hear a lot about convertible notes is that it allows you to delay the dreaded conversation about valuation. Sorry, but this just isn’t true. Pretty much every note you’ll see has a cap, and yeah – most investors look at that cap and see it as your valuation. Yes, there’s some math here that makes it different but nobody’s doing that math. The reality is that you aren’t delaying the process of setting a price by using a capped convertible note, you’re just communicating the price in a different way.

So why not just have an uncapped note? Good luck getting any investors onboard with that. Uncapped notes are more of a myth than a reality IMO.

Now let’s talk about maturity dates. Unlike equity investments, which are an actual investment, i.e. someone pays you money for a chunk of your company, notes are debt. Like most debt, there are stipulations on what happens if you don’t pay off (or convert) the debt in a given timeframe. 

Most founders pick somewhere in the 12 – 18 month range for a maturity date assuming by then they’ll raise a nice big round, convert the note, and ride their unicorn into the sunset. Now here’s the harsh reality. Just about everything you plan for will take twice as long and cost twice as much…which means that once your maturity date hits, there’s a good chance you’re not going to be where you thought you were.

I know what you’re thinking now. But wait!?! Everything I read on Techcrunch and all of my favorite VC bloggers show explosive growth followed by a nice juicy A Round within 12 – 18 months of raising my Seed round, so isn’t that the norm? What about all those fancy projections I made and pitched over and over again…are you saying those aren’t going to happen?!?

Sorry to be the bearer of bad news. The norm is for companies to go bust in that timeframe. For those who can power through and find some product-market-fit, they’re alive by the note maturity date but they might not be in a place to raise. Sounds grim? It can be, which is why setting a relatively arbitrary date on when you’ll be ready to raise next doesn’t really make much sense so early in the game. Oh and if you’re wrong, you’ll end up paying interest, which means along with now being off your plan and running low on money, you’re now bleeding even more money.

Okay, now for the last but certainly not least disadvantage to a convertible note – the strange misalignment of incentives that takes place with a note if the company is in a position to raise an A Round.

A second disadvantage is the nonalignment of incentives between seed-round investors and company management. The latter want the Series A round to be at as high a valuation as possible, so they dilute their ownership as little as they can. In contrast, seed investors want the next round to be as low as possible so they get the biggest percentage of the company that they can for their investment.

(Source – Wharton Magazine)

So let’s summarize:

  • In the end, convertible notes can end up costing more money than equity financing, and add a lot more complexity later down the road
  • Note maturity dates add stress around a relatively arbitrary date
  • Interest payments (post-maturity) can bleed money from a startup at their most vulnerable time
  • Incentives between founders and investors going into the A Round can get dicey
  • You’re not delaying the conversation about price, seriously you’re not so don’t trick yourself into thinking that a cap is completely different. Yes it’s different but investors will still say “oh their cap was $6M but I just don’t think they’re worth that much” all day long…
  • With an equity round you’re giving investors a piece of your company, with a note you’re taking on debt, and well, debt is debt and I don’t think you should choose debt if you have the option not to (sounds simple right?)

I know this is a relatively controversial topic but heck, I’m not alone in my distaste for convertible notes, here’s some additional reading you can do if you don’t want to take my word for it because who the heck is this Morgan guy anyway?

Further reading on why convertible notes suck:

Wharton MagazineThe Two Disadvantages of Convertible Notes

Rockies Venture ClubTen Reasons Why Not To Use Convertible Debt

Lighter CapitalTop 5 things to consider before getting convertible debt

Alex IskoldThe absolute worst thing about convertible debt

JRPixelsMost pre-revenue deals should be priced equity rounds, not convertible debentures

Welcome to

Hi, I’m Morgan, but you probably already knew that. I thought that it would probably make the most sense to have my first blog post introduce me and talk a little bit about what I plan to share on My plan was to keep this first post short and sweet…but once I finished writing it I realized it wasn’t really that short, so I thought I’d put some bullet points at the top for those who don’t want to read the whole thing.

  • I’ve been running Bold Metrics, a venture backed SaaS startup for the last six years with my co-founder (and our amazing CEO) Daina Burnes
  • Before Bold Metrics I worked at Sonos and watched the company grow from a 40 person startup to an 1,000 person company and raise over $300M along the way
  • A couple of years ago I started Angel Investing and this year I had my first investment exit (and I actually made money in the process – yay!)
  • I am a first-time founder and very new Angel Investor so this blog is not meant to be a place to come for expert advice because I’m not an expert
  • I see this blog as a place for me to share my experience as a founder and to hopefully steer the conversation away from the culture of founders talking about how they are “crushing it” because being a founder is fucking hard and no, most of the time we are not crushing it, we’re getting crushed

Want to read the unabridged version? Keep on reading then. Oh and in case you want to know what I look like in non-cartoon form, here I am:

For the last six years I have been running Bold Metrics, a Enterprise SaaS startup I co-founded with our amazing CEO Daina Burnes back in 2012. You can think of us as an API for the human body – in short, we use machine learning to predict body measurements and companies like EXPRESS and Men’s Wearhouse use us to reduce returns and run more sustainable, environmentally conscious businesses.

We went through the Techstars accelerator in 2014 which was transformational for our business. Without Techstars I don’t think we would have landed our first $1M Seed round and I made lifelong friends and connections through the program which has made it a truly indispensable part of our journey.

Before I co-founded Bold Metrics I worked at Sonos, where I had the chance to watch a startup grow from 10M in funding at ~40 people, to over $300M in funding and close to 1,000 people. John, Tom, Craig, and Trung, the founders of Sonos were a major inspiration, and it was my experience at Sonos that really catalyzed my interest in starting my own company.

Over the last two years I have started Angel Investing which has been a really interesting and challenging experience. Just to be clear, I’m a first time founder and very new Angel Investor so no, I don’t know what I’m doing and yes, I’m learning new things every single day.

So why

It’s no secret that running a startup is a stressful, all-consuming endeavor. As a founder I have had to make major sacrifices when it comes to spending time with friends and family, making money, and being able to balance work and life. I wanted to have an outlet to share my experience, not as an expert, but as a founder and new Angel Investor. I don’t really think I’m experienced enough to give advice, but I do feel like I need an outlet to share my experiences, both good and bad, and if someone else can relate and it helps them, that would be the icing on the cake.

I feel that the startup community can be too focused on “crushing it” and founders often don’t share what’s really going on with their peers. Most of the time, when I talk to another founder, they just share everything that is going well in their business…never what isn’t working. I’d like to be more real and raw, as someone that has really failed to achieve a work/life balance and doesn’t have all the answers, I feel like my voice can hopefully be a more authentic view into the life of a startup founder.

At the same time, as a new Angel Investor, I find it incredibly interesting to see how other founders pitch, run, and grow their companies. I learn from them just as I do through my own experience so I’m also interested in sharing that with all of you as well.

My plan is to start blogging weekly, if I can increase it to twice a week that would be great but I want to start with a cadence that I know I can stick with. Thanks for reading and I look forward to sharing my adventures with you.