Series A may be the hardest round to raise. But new data shows that cutting burn can give you a huge advantage.

Startup advisory firm Kruze Consulting released an extensive report yesterday based on data from about 100 seed stage startups. All tried to raise a Series A in 2023.

Burn Multiple Reigns Supreme

Kruze compared startups that raised successful Series A’s with startups that failed to raise and shut down. The most staggering difference between the two: capital efficiency.

Average Burn Multiples
Successful raise: 1.7
Failed raise and shutdown: 22.0

Wow! That’s an incredible disparity.

Companies that closed a Series A lost just $1.70 for each additional $1 of revenue they added. Meanwhile, the failed startups incinerated a staggering $22 just to add a single dollar in revenue.

Amazing Growth, But…

Burn multiple was a stronger predictor of raising a Series A than growth alone. Companies in Kruze’s data set growing as fast as 10x YoY failed to raise an A and shut down.

This wouldn’t have happened in 2021. Anything growing that fast would be swimming in VC dollars.

Now, when VC’s look at a company, they want to know if it will be able to raise more money in the future. A capital efficient business is in a good position to raise again, despite the down market.

But if the margins are low, the picture is much darker.

The founder may just burn the cash quickly, be unable to raise more, and go under. Bye bye investment.

Inside the Series A Market

One of my companies is closing a Series A right now. Despite the down market, they’ve had no trouble lining up investors. I’m upping my bet as well.

These folks made it look easy because their growth is strong and their burn is tight.

Had these founders burned cash with abandon, this Series A might well have never happened. But their discipline is paying off.

Wrap-Up

When I’m considering a new investment, I always ask about burn rate and runway.

These days, no one can count on getting funding. Businesses have to spend wisely and have a clear path to breakeven.

The good news is that the startups built in today’s down market are lean and hungry. In 10 years, these companies will dominate the world.

What are you seeing in the market today? Leave a comment and let us know!

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