The Likelihood of Raising Capital (aka. Running the Startup Financing Gauntlet)

Stop by a pitch competition or VC panel event and you’re guaranteed to hear questions about raising money and just how likely it is for your company to be one of the selected few.

Dave McClure advises startups to just be awesome. Marc Andreesen tells entrepreneurs to be so compelling investors can’t resist giving you money. That’s all well and good, but what are the actual odds either of these guys is going to invest in your idea/team? Tomasz Tunguz decided to crunch the numbers and find out.

First the good news – there are more companies than ever raising seed capital (4x more in the last 4 years). And while the number of companies being started has also gone up dramatically, most likely the odds of raising a seed round are much higher than they used to be (unfortunately there’s no way to quantify this as the total number of companies formed is not available).

Now for the bad news – while the total number of A rounds has gone up marginally, series B remains basically unchanged. Meaning the odds of your startup making it from seed to B have gone down from about 30% in 2006 to about 5% in 2011 (the mean for all years is 12%). Pretty brutal numbers.

So perhaps if your idea is awesome and your traction is ridiculously compelling, you may get lucky enough to successfully run this gauntlet. On the other hand, I wouldn’t worry about the numbers that much. The odds are still way better than playing Powerball.

Nikhil Basu Trivedi Asks What’s Up with the Series A?

Nikhil Basu Trivedi takes a look at the current trends in Series A rounds where we’re seeing both a rise in ‘mega’ A rounds ($10M+) and a crunch.

Companies with factors such as traction as exhibited by usage growth or revenue growth, or an all-star team, or an insanely compelling story are raising larger Series A rounds than in the past. But companies without such momentum are finding it harder to raise a Series A, often having to raise smaller Series A/“Seed+” rounds, or bridge rounds, or facing the reality of having to shut down.

You can read the full article here.