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Social enterprise articles

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In 2016, the number of seeds has fallen by a 27.6% reduction in the number of seed rounds. But as the chart above shows, the median amount invested in seed rounds continues to increase at about 40% annually. This trend started in 2014 and has continued through the first quarter of 2017. These two forces in opposition netted a 10% increase in total dollars in 2016.

The average number of investors per seed round has plateaued at about two. A few years ago, party rounds seem to prevail in the press. But data doesn’t support a broad change. In fact, the distribution of seed investor count hasn’t changed materially over the last seven years. It’s quite nearly always 2.

The big trend is the increasing prevalence of second seed rounds. Second seeds are seed rounds raised after an initial seed round. Though quite rare in 2010, startups have raised more than 750 second seed rounds in each of the last three years.

Second seeds now represent approximately one in three seed rounds. This is a big contributor to the increase in median seed round size.

Several founders have asked me recently how investors perceive second seed rounds. This data shows that they are broadly accepted as a common way to finance an early stage startup. There is no stigma with these rounds.

The chart above shows the median amount of a first seed round and a second seed round. The first seed round has persisted below $400,000 throughout the dataset. The anomaly in 2017 is due to an outlier. Only one company has raised two seed rounds so far in 2017, qualifying it into this dataset.

In contrast, median second seed size has more than doubled. Since 2013, median second seed size has increased by 18% annually. It now exceeds the overall median. Startups that raise one seed round typically raise $1.0M in that round, compared to startups that raise two seeds, who raise about $1.6M across those two rounds.

The very earliest investors’ appetite and deal structure seems not to be changing. However, the increases in second-seeded rounds suggest investors are competing more for these opportunities. Consequently, round size and valuation increase.

Overall, it is difficult to paint the seed market is anything other than healthy. The total amount of capital available to seed startups is constant. The amount they can raise is increasing. Second-seed have become ubiquitous. All of these different factors contribute to strong financing market to support the very earliest companies.

 

Originally published on 3/20/2017 by Tomasz Tunguz

February 11, 2017

Method’s Hustle

If you want to build a ship, don’t drum up people together to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” – Antione de Saint-Exupery

Newton’s first law of motion dictates that an object stays at rest until acted upon by force. Even if that object is the best-designed product, it will never be successfully launched without exerting the right amount of force to get it in motion. That is what the building phase is all about—igniting the momentum necessary to launch a great product and a great company.

The most important factor in this phase is hustle. So many pieces need to fall in place, from press to design to distribution, and at the prelaunch stage getting support and funding can take a good deal of persuasion. This is a messy process for many founders, of fits and starts, with daily challenges and many setbacks. Just think of how many of those the Embrace team had to overcome. Often the only way to succeed is with a great amount of audacity, energy, passion, and sheer hustle to rally all of the resources, people, and financing required. (more…)

Many founders feel a great sense of urgency to get up and running, and they are too hurried in launching and then give up too soon if the service or product doesn’t take off right away. Another key problem in this phase is that once they’ve created a business plan, they follow the plan too rigidly, mistaking what should be only a rough guide for a fully worked-out business model. A third common mistake is believing that they have to have all the answers and should be able to design their product or service on their own or with only minimal input from others.

The stories of successful social innovators, however, clearly demonstrate the value of taking a more user-focused and iterative approach to designing your product or service. Every one of the enterprises profiled encountered unexpected setbacks and had to scramble to make improvements to their concepts or products, often making a substantial pivot away from the original plan. It’s not important whether you follow the Lean Startup methodology or improvise your own particular development process, but what’s vital is that you approach the process with a good dose of humility, not believing you’ve got answers, but rather that you’re testing hypotheses, and that you move forward according to these three steps:

(more…)

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