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Path to Series B

Circuit One, May 9, 2025

HELEN LIN, TONY MOSES

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The Valley of Death

[Helen]

The valley of death is not a new concept in the venture world. It occurs when you have a chicken-egg problem because you need to raise capital to de-risk tech and commercialization, but you need to demonstrate de-risk and commercialization in order to successfully raise capital. This is true for most start-ups before Series B. What creates the valley of death is that as the total cash burn increases but the risk of the business is still high, the number of investors willing to invest drops off. Once the company is derisked and is cash flowing positively, it opens up a set of willing investors again. Hence there is this missing middle of “valley of death”. What’s new in the current market condition, though, is that the valley of death has gotten deeper and wider compared to a few years ago. The financial system is losing sources of non-dilutive funding, such as governmental loans and grants, that helped reduced risk in this stage. Debt providers have also become more conservative which means less and more expensive debt capital. This leaves equity investors to pick up the slack, so those investors are now becoming more demanding with their investment criteria.

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Key milestone areas

UNIT ECONOMICS

PRODUCT/ MARKET FIT

TECH DERISK

EXECUTION

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PRE-SEED

SEED

SERIES A

SERIES B

Commercialization journey

Idea

Proof Of Concept

Saleable Product

Scalable Business

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Tech derisk

Mid-Lab Bench

Works, not yet repeatability

Late-Lab Bench

Repeatable, defined, entering early commercial deployments

Tech Risk Retired

Demonstrated at commercial scale

Scale-Up Risk Retired

Production scaled up

PRE-SEED

SEED

SERIES A

SERIES B

Idea

Proof Of Concept

Saleable Product

Scalable Business

[Tony]

First, and probably foremost for any technology-first company, is de-risking your technology. The tech has to be proven to work at a fundamental level and then at a scaled-up level.

It may be helpful here to differentiate between science risk and engineering risk. An example of science risk is if you are a biotech company and one day you’re growing your cells of interest twice as fast and the next day all of your cells are dying. That’s science risk. But if you get to the point where you are growing your cells consistently, you can characterize and control the growth and the results are repeatable, then you’ve largely retired scienc risk. But now you need to scale up from producing at erlenmeyer flask scale to a 1 L tank, and then from a 1L tank to a 1000 L tank–that’s engineering risk.

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Execution

PRE-SEED

SEED

SERIES A

SERIES B

Idea

Proof Of Concept

Saleable Product

Scalable Business

Successful trials

Commercial strategy

Pilot production

Initial supply chain + distribution

Initial sales + technical support

Pricing examples

Stable production

Large scale supply chain + distribution

Sales + technical support team

Robust pricing model

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Product/market fit

PRE-SEED

SEED

SERIES A

SERIES B

Idea

Proof Of Concept

Saleable Product

Scalable Business

Idea / Concept

Prototype

Minimum Viable Product

LOIs�Pilot Revenue�Offtake Agreements

Large Scale Adoption

$5-10M Revenue

[Helen] Product/market fit is really critical at later stages (Series A). It unfortunately also means different things to different people. Some investors think of it as demonstrating that there are customers who want to pay you for what you are building, full stop. Per this thinking, proof points might include paid pilots, signed offtake agreements and purchase orders, or to a lesser degree, non-binding LOIs. Other investors may be looking for a step further of de-risk, which is that customers are willing to pay you AND you have proven you can deliver product successfully. In this case, investors are probably looking for recognized revenue.

If we overlay this on fundraising stages, at pre-seed stage, you’re likely going off of customer interviews, targeting features of products in existing market segments, etc., and designing towards that. At seed, there is expectation to have some early traction with customers with non-binding LOIs and the like, or perhaps co-development agreements with commercial partners like JDAs.

At Series A you need sales closed. Maybe it’s not recognized revenue yet, but offtake agreements, purchase orders, the more binding the better. These are also crucial if you want to start considering venture debt, as binding commercial agreements can be bankable.

For Series B, we’re hearing investors now say they are looking for $5-$10M in revenue, though there may be some flexibility on how much of that is recognized revenue.

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Unit Economics

PRE-SEED

SEED

SERIES A

SERIES B

Idea

Proof Of Concept

Saleable Product

Scalable Business

Modeled TEA

Mostly empirical TEA

Good customer U/E

Good company U/E

[Helen] Unit economics. You need a model for that across all the stages. How that model plays out across the stages is important.

At the pre-seed stage, it’s just a model. It should be realistic, and show a path to good margins, and competitive prices.

At seed stage, assumptions need to be replaced with data. You have a real yield. You have pricing for raw materials and CMs. You might have some assumptions for capex, but they’re based on budgetary estimates.

By the time Series A happens, you should be in the market. So your selling price needs to work for your customer. Ideally, it would work for you, but you might still be optimizing to bring down costs. For example, maybe your CM costs will come down when you hit a certain volume, and you’re just not there yet.

At series B, the U/E should be working for both you and the customer. They’re getting a good price, you’re getting good cash flow. In the previous example, you’ve hit those volume breaks where your CM costs drop, and now you’re at a good margin.

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The best defense is a good offense!

No guarantees in raising funds
Bridge rounds are distracting, value destroying

So what?

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Fundraising decision tree

Sufficient runway to reach milestones

Yes

No

Lower burn

Get it done!!!

Uh-oh…course correction

Lighter assets

Bridge round

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Think about next raise, Day 1 after closing your current round.

Set and communicate milestones
Do the runway math

Cloud CO₂ example

2 weeks per fermentation, 20 iterations needed (10 mos)
$500K monthly burn, $3M cash-on-hand (6 mos runway)

Milestones always take longer.

Get to revenue! Balance with long-term R&D
Prioritize capital efficiency

Proactive not Reactive

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Extend runway.

Raise a bridge (external investors and/or insiders)
Reduce costs (while still hitting milestones)

Go asset light.

Cloud CO₂ example

Explore licensing technology/organism
Retain scientific/R&D and customer support, but production team is let go
Key considerations: Protect IP, maintain customer willingness to pay with unique value-adds

Uh-oh…course correction

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Thank You