Benjamin Kuo’s Blog

We’ve recently been chasing down a local company which has raised a Series D round of funding, but so far has refused to directly respond to questions about the round, who is included, and details of the funding (even after being presented with a complete list of facts and asking for a “yes” or “no”). In fact, it’s all too common now to be rebuffed by companies beyond their Series C funding rounds.

Why the hesitance of the firm? Quite simply, in today’s investment climate, it appears that a Series D can often be a black mark on a company. While early rounds (A, B, C) are almost always a very good thing, the Series D is much more ambivalent.  Sometimes–but not always–a company which has raised a Series D may have just had to recap the firm; may have had to take a serious down round, if it has raised a lot of capital in the past; usually, but not always, is looking for a buyer.  On the other hand, sometimes a Series D can indicate a company is doing very well — in particular, if that Series D was actually used to provide some liquidity to founders ahead of an IPO; if a company has pulled in a significant strategic and/or private equity firm; or if it’s honestly expanding so rapidly it just needs some additional capital.

How should potential employees, partners, and others view these? Some things we look at:

1. Did the company raise more in its Series D than earlier round, or was it a single digit round?
2. Has the company had significant executive turnover in recent months?
3. Did all of the prior investors re-up in the new round, or did some mysteriously disappear? And was there a new, high profile lead?
4. Was the round announced, or found out — ie, did they want the world to know or did it just leak out by accident?
5. How much has the company raised — i.e. has the company just raised so much as to preclude a decent return on the firm?

If a company which just raised a Series D just got a new CEO, lost a slew of VPs, only got a few of its prior investors to participate, and is now heading to around $100M in funding — watch out. If, on the other hand, the founder is still in charge, the firm has added some high profile execs (and in particular, a CFO with public experience), and signed up a brand new, high profile investor or investment bank — that’s good.

This entry was posted on Friday, May 2nd, 2008 at 12:05 pm and is filed under Venture Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.