Where are they now? October 2013's Biggest Series A Investments
Though no one can clearly define a “Series A” investment—don’t get me started on naming conventions—it is generally considered to be a significant funding round meant to accelerate the growth of a validated concept. It’s a signal that professional investors have confidence in the team, product, and market, and usually gives the founders enough fuel to begin growing at a much stronger pace.
But what exactly happens after a Series A investment? What does the typical company experience? And for those entrepreneurs currently going through the process, what can you expect?
According to Mattermark, 120 “Series A” venture capital investments were made in October 2013. I started this analysis with a bit of a bias (a case I’m working with), so I narrowed my population down to non-biotech/pharma companies that had raised $8 million or more. From there, I found about 12 companies for which we had rich data, so that seemed like a good place to start. Here they are:
Hiring… Lots and Lots of Hiring
Clearly the most notable change in a company after they receive their Series A investment would be growth in headcount. But first let’s establish how big the companies are at the start of the process. Also, I’m interested to see whether there is correlation between the size of the company pre-investment and the size of the investment; one might guess that a company with more people would be worth more and require a larger investment.
Here’s a chart of the number of employees pre-investment relative to the investment size. As you can see, the largest investment did not go to the largest company and there was really no mathematically significant relationship between these two variables. Big and small companies have the same chance of raising capital.
All of the companies in our cohort saw extraordinary growth in the year after their Series A investment. The chart below shows each company’s personnel in the post-investment year, with an average of 2.4x headcount growth during the period. Two of the companies that were in our initial set raised Series B capital during the 12-month period, which helped fuel even more hiring. We’ve removed them from the remaining analysis to be conservative.
For most of the companies in our sample set, we see a 2.4-fold increase in personnel in the first year after the Series A investment. There are some that grow much more quickly and some that seem to plateau, but in general you can see that the growth curves all point up in roughly the same slope (2.4x). But what about the companies that raised more money, did they have higher employment growth?
Not surprisingly, we see a positive relationship between amount raised and the number of new hires after an investment. Our basic regression—which has a decent R-squared—implies that for every million dollars of Series A capital, a company will hire 3.1 people in the first year. As scientists say, “it works in practice, but does it work in theory?”
A quick back-of-the-envelope session shows that this makes sense. Assuming that each employee costs $200,000 per year, a startup would add $660,000 in expenses by hiring 3.1 people. If we also assume that the time between investment rounds is approximately 18 months, then the expected cost of 3.1 employees would be $990,000 before new funding is raised. For those companies that are already generating revenue, they can either extend their time between funding rounds or hire more people for each dollar raised.
What Do The Teams Look Like?
When a company gets significant investment and grows 2–3 times its size in a year, what does the team look like? Do the startups hire sales or engineering? Let’s dig a bit deeper. Using the “Function” listing on LinkedIn, we can get a general overview of the composition of each team.
Formlabs designs and manufactures 3D printers. The company raised $19 million in October 2014 and grew its team from 22 to 70 in the next 12 months.
As of early November 2014, 53% of Formlabs’ employees list themselves as in “Engineering” on Linkedin. The rest of the team is broken down between the “business end” of the company, including Support, Creative, Finance, HR, and Legal.
Based in Somerville, Massachusetts, Formlabs is not surprisingly filled with many MIT grads. Many of its employees formerly worked at the MIT Media Lab, but the most popular former employer for the company is Apple, where 9 of its team were previously employed. Clearly, Formlabs is an engineering-heavy company that is looking to innovate with top technical talent.
Wrike is another story. As we mentioned before, Wrike hired far more people than our model would expect because it has a profitable business that is not dependent on investment alone for funding.
Wrike’s team is very Sales (18%) and Marketing (15%) heavy, with only 29% of its team working in Engineering or IT (according to their LinkedIn profile).
Wrike is unique in another sense due to the geographical spread of its team. Of the 80 employees listed on LinkedIn, 42 of them are in the Russian Federation and 36 of them are in the San Francisco Bay Area.
Building a company both before and after a serious investment is an art, with far more things to get done than hours in the day to do them. The process of building a team is one of the most critical things a CEO can do. So there is a lot that we can learn from the experiences of past companies both in general—such as 3.1 people per million—and in specific cases (Formlabs vs. Wrike). With more time and more data, we could dig into the hiring at each company to see what roles got filled and in what order. And perhaps with enough crunching, we could find some very useful bits of insight that can help the next generation of entrepreneurs.
