The Real Risk Isn't 'Series A or B Death'—It's Your Lead Angel Investor Pulling Out, Warns IPO Filing
Since the second half of 2013, the internet healthcare sector has gradually attracted capital attention. A large amount of funds that had previously been invested in the primary market and generated profits in the secondary market were redirected into the venture capital market. This influx, combined with many founders and executives of listed companies who had already completed their initial capital accumulation, led to an exceptionally vigorous fundraising environment in 2014.
According to statistics from VCBeat’s Internet Healthcare Research Institute, only2014 Financing in China's Internet Healthcare IndustryThere were 103 transactions, with disclosed financing totaling $1.4 billion. Among these, there were 30 angel rounds, 48 Series A rounds, 10 Series B rounds, and 10 Series C rounds. By 2015, onlyFirst Half of the Year, 17 companies have secured angel-round funding, 3 have completed Pre-A rounds, 34 have raised Series A, 7 have obtained Series B, and 4 have achieved Series C. Of course, these figures are based solely on publicly available information.
A question of growing concern is: what are the odds that these companies, having secured financing, will successfully close their next funding round? The recent heated debates around “Series A death” and “Series B death” essentially revolve around how startups should navigate their operations after raising capital.
Chris Dixon of Andreessen Horowitz approached the issue from a different angle, examining how venture capital firms—particularly well-known ones—influence the likelihood of a startup’s success in securing its next round of financing.
What Is a Signal Crisis?
Chris Dixon’s core argument is that the interplay between venture capitalists’ investment signals and their fundraising dynamics is substantial. If a renowned firm wants to invest in you, other investors will follow suit. However, if a prestigious institution that previously provided angel funding decides not to continue supporting your project, your venture hits a dead end. This is known as a signaling crisis.
To verify this claim, CB Insights reviewed all angel investment transactions from 2008 to June 2013 and examined the investment portfolios of 18 top-tier venture capital firms. The analysis confirmed that the “signaling crisis” is indeed a real phenomenon. If prominent venture capitalists decide to exit during a company’s Series A financing round, the future prospects of that startup are likely to be dim.
The first row in the figure shows two key points:
1. Generally speaking, the probability of projects that have secured angel financing advancing to Series A is 35%;
2. However, if renowned venture capital firms participate in the angel stage, the probability of advancing to Series A will increase to 51%;
The second line yields:
1. If prominent venture capital firms do not participate in follow-on financing after the angel round, the probability of the project advancing to Series A is only 27%.
In real-world investment scenarios, co-investment is a highly prevalent practice. Many investment firms base their decisions on the level of competition for your project, and the assessment by renowned investment institutions often shapes broader market consensus. Therefore, when sought after by prominent investors, you must be prepared to endure the dual intensity of this “ice and fire” experience.
Of course, we should pay closer attention to why angel investment firms chose to opt out in the next funding round; after all, it takes two to tango.
Finally, let’s examine which investment firms’ data Chris Dixon has compiled:
Accel Partners
Andreessen Horowitz
Battery Ventures
Benchmark Capital
Bessemer Venture Partners
CRV
First Round Capital
Founders Fund
Google Ventures
Greylock Partners
Index Ventures
Khosla Ventures
Kleiner Perkins Caufield & Byers
New Enterprise Associates
Redpoint Ventures
Sequoia Capital
Spark Capital
Union Square Ventures