On Tuesday, Marc Andreessen tweeted an insight into how VC’s treat the amounts of money raised and the labels attached to them. His tweet said:
Cautionary note: No competent VC is actually fooled when you show up after raising $6M in seed financing and say you’re now raising an A!
Obviously he was quickly answered by lots of people offering examples of companies that raised more than 6 million dollars in their seed round. However, if you follow the conversation, I do not think that the amount raised in a seed round was his motivation to tweet about this. It was about making startup founders aware about the way VC’s look at startups. Startup founders need to be aware that VC’s will put you in their own naming of your round, regardless of what you call it yourself.
In one of his later tweets, he puts the limit for seed funding at about 3 million. Saying that if you go beyond that, it will be seen as raising an A round. And with that statement he also shows how he feels competent VC’s should look at a company that has raised beyond that 3M mark. Because even though you might knock on their doors to raise a round A, in his opinion a VC should be looking at you as raising a B. The difference being that you will be judged much harder on your progress, your product and your traction. They need to be up to B standards to be able to raise that extra cash.
To me, this also shows that startups have to be intelligent about the amount of money they are raising at which stage. Even if you have an opportunity to raise more, that might not always be beneficial. Because you might not have the insight that raising 4M will get you ready for being judged to B round standards. Which might mean that raising under 3M and be able to raise more in future rounds might be much more beneficial to your startup.