Early Investing

Mailbag: Disruptors Can Still Be Disrupted

Mailbag: Disruptors Can Still Be Disrupted
By Early Investing
Date September 22, 2019

Q: What’s the difference between a Series A company and a seed company? Are there other categories?

A: A “seed company” is a company that is raising money in a seed round. The term is often used in a loose way, so a company that has just finished a seed round or is just about to begin a seed round can also be called a seed company. A “Series A” company is a company that’s raising money in a Series A round.

Which begs the questions: What is a seed round? And what’s a Series A round?

A seed round is usually the first fundraising round a startup does at the very beginning of its journey.

There are exceptions to this. Startups often do an informal round before a seed round called a “friends and family” round. As the name suggests, it’s open only to their closest friends and family members. Another exception: A company can self-fund (called bootstrapping) until much later in its journey. One of my founder friends in Boston waited three years after founding his company to raise his first round in a Series C (which more typically comes after seed, Series A and Series B).

A Series A round typically follows a seed round. Everything is bigger in this round compared with the seed round: bigger expectations… a bigger amount of money being raised… and a bigger valuation (only if those expectations are being met, though).

Sometimes, however, a Series A round does not directly follow a seed round. It might follow an intervening round that goes by several names: a “post-seed” round, a “bridge” round or a previous Series A (“Series A-1”) round. You have to do a little sleuthing to know exactly how many rounds a company has done before the Series A you’re looking at.

As investors, we like both seed and Series A rounds. Seed rounds have a bigger upside because you’re investing at a lower price. But we also like Series A companies, which we can assess over a longer period. With Series A companies, we see more traction, more metrics and more information than are typically available at a seed round. And you still get great upside because shares are still on the cheap side.

Several rounds may follow the seed and Series A rounds. It goes in alphabetical order: Series B, Series C, Series D, Series E and so on. With each successive round, everything gets bigger, including money raised.

After Series A, the money startups want to raise gets too big for the small, individual contributions that characterize crowdfunded raises. So you hear less about these later rounds from us because we focus on crowdfunding opportunities.

One more difference between seed and Series A companies worth mentioning: Seed companies outnumber Series A companies by roughly 2X. Roughly half the companies that raise money in a seed round never make it to a Series A round. It’s one of the reasons why seed companies are considered riskier than Series A companies.

Both come with risk, though. When you invest in either a seed or a Series A company, you’re counting on it to advance through several rounds… and raise more and more to fund its growth until it IPOs or is bought out by a bigger company.

+ Andy Gordon, Co-Founder, Early Investing

Q: What are your thoughts on bitcoin maximalists?

A: Bitcoin maximalists are people who think bitcoin is the ONLY crypto worth developing and investing in. And that all other cryptos are a waste of time and an impediment to a world where bitcoin is a dominant or even monopolistic force.

I think the bitcoin maximalists have a point. Bitcoin is the dominant cryptocurrency right now. It’s extremely secure. It has the most investors. It has an incredibly active community that’s constantly improving it. And it’s the crypto most likely to be around decades from now. So there are a lot of good reasons to line up behind bitcoin and make it work.

But bitcoin maximalists miss the boat on two key points.

First, bitcoin is a disruption story. It’s disrupting money as we know it. It’s decentralized. It crosses borders with ease. It’s not backed by governments. It’s programmable. Money hasn’t been disrupted in centuries. And that’s exactly what bitcoin is doing.

But there’s a catch. Just because you’re doing the disrupting doesn’t mean you’re immune to disruption. In the ’90s, the conventional wisdom was that AOL and Netscape would rule the internet. But that never happened. Google, Facebook and a whole host of other forces disrupted them.

The idea that bitcoin could never be disrupted just doesn’t make sense. The market should sort those things out.

Second, bitcoin was created as an alternative to the current economy and the dominance of fiat currency (paper money). Bitcoin is sound money. There will never be more than 21 million bitcoin.

But being the dominant or hegemonic player doesn’t mean you’re the best player. That’s the reason fiat is ripe for disruption.

Should bitcoin be the only crypto?

I say no. Competition is good. If there’s a faster, more secure, more agile, more feature-rich crypto out there, then let that alternative emerge.

It’s how we got bitcoin. And it’s how we’ll get the “next future of money.”

+ Vin Narayanan, Senior Managing Editor, Early Investing

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