Q2 2025: The new Series A Bar is $3M ARR—& only 20% of seed startups make it. | Peter Walker, Head of Insights at Carta

Peter Walker from Carta drops the hard data every founder needs. Based on actual cap table data from 1000s of startups, this Q2 update reveals the brutal new reality.

It takes 2+ years to go from seed to A (up from 1.6), you need 3X the revenue you used to, and if you're not AI, you're getting half the attention. 

But there's good news too—teams are finally getting leaner, exits are picking back up, and the worst of the funding winter might be behind us. 

If you're raising in 2025, this is your reality check.

Why You Should Listen:

• $3M ARR is the new Series A bar—& it takes 1 in 4 founders 3.5+ years to get there
• Half as many seed deals are getting done but at 20% higher valuations—you're either in the AI club or you're out
• Founders own just 56% after their first priced round and only 10% by Series D—every round costs more than you think

Keywords:

Carta data, Series A requirements, startup fundraising 2025, seed to Series A timeline, ARR benchmarks, AI startup valuations, bridge rounds, founder dilution, startup team size, venture capital trends

Transcript

Peter Walker (00:00:00):
Let's talk about teams. This is perhaps the biggest shift in startups. Which is just teams are smaller. Everyone's talking about it. The headlines are true. If you are building, in startups right now. Especially if you're building in AI startups. It is the expectation is that you're going to try to do more with less.

Pablo Srugo (00:00:18):
The latest data would show that if you raise a seed right now. You have a one in four chance of it taking three and a half years or longer to raise an A. Which frankly, I can tell you no one is planning for.

Peter Walker (00:00:30):
The founding team, after their first priced round. Which in this case will be a priced seed round. Own on median 56% of their own business. So from 90% to 56% after their first price round.

Pablo Srugo (00:00:43):
Raising money is not value creation. You raise money, you don't create value.

Previous Guests (00:00:47):
That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit.

Pablo Srugo (00:00:59):
Do you think the product market fit show, has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders and it lets us get better guests, thank you. All right, man. Peter, welcome back on the show, dude.

Peter Walker (00:01:15):
Pablo, great to be here, as always. How you been?

Pablo Srugo (00:01:17):
Good, man. Always excited for these quarterly episodes. We've been doing this every single quarter for the last, probably. Maybe, might have been a year. Is this our fourth? Is this our third or fourth?

Peter Walker (00:01:25):
I think it's about a year, man. Yeah, we're a real show now.

Pablo Srugo (00:01:28):
I like that. Well, you know, there's so much data about startups and things like that, and I just. Honestly, and I say this. I'm not getting paid to say this. I promise, but Carta is it does ground me. Because I know the data comes from cap tables and that just changes the game a little bit. Instead of just, I've been on the other side. Where companies report things to TechCrunch or whatever, and it's not 100 percent. You know what I mean? And so the key things are often left out. So anyways, you make this state of VC 2025 report, posted it about a week ago on LinkedIn. I was just going through it and I think this will probably be the best way to get out what the latest is in a pretty kind of cohesive manner. So we'll go through this. We'll have the video up on YouTube as well. But we'll obviously a lot of people are just listening. So we'll talk about the charts, too. Obviously, the visual is ideal for those who for those who can see it, but we'll make it work.

Peter Walker (00:02:22):
I've gotten decent at describing charts that no one can see. So let's see if it works. Call me to it.

Pablo Srugo (00:02:27):
It's a superpower, man.

Peter Walker (00:02:29):
All right, man. I mean, yeah, we can just maybe pop through this. So I put this together, a couple of weeks ago and it was trying to just aggregate what we know about what's going on for venture backed startups so far this year. The first thing that I think, so this is a chart of just total capital raised by startups on Carta from 2019 to 2025. Every quarter and I think what's still under appreciated is just. What we did in 2021 has echoes to today and it is not as though we are free of that period. And then the other weird thing is 2021 happened, tons of funding, probably overfunding, overvaluations, just the bubble behavior and then in the middle of 2022. When things were declining and it looked like we were going into a startup recession. We had the launch of ChatGPT publicly. So on the one hand, it kind of feels like we overfunded a bunch of companies and then we were in route to having what would have happened in 2008 or 2000. Where there was going to be an extended period of decline for startups. But then we had AI and so those two things happening basically simultaneously. I think contributes to a ton of confusion about what startups are right now.

Pablo Srugo (00:03:46):
I'll say two things that jump out at me. One is the kind of the jump from pre and post COVID to that 2021 COVID period was like two and a half X. I mean, that's the jump that we saw in about a year. The other thing that I think is interesting is when you're in that down, you feel like the world is ending. But if you look at the numbers now. The absolute bottom, which was Q1 of 2023. The amount that raised, if you compare it to the pre-COVID years, was actually in line. Would have been like a not great year by 10%. We're not talking about it went to his half of what it used to be either.

Peter Walker (00:04:24):
Yeah, the decline was and obviously this is, you know. There are more startups on Carter today than there were back then. So it's a little bit apples to oranges. But still, I think that people overrated. This is the thing. I don't think the decline was actually that serious. And part of that was because everyone started getting, super excited about AI companies. So in some ways, I think you could make the case that the decline should have been larger and if it had been larger. Maybe there'd be more healthy companies today. But I'd actually love your opinion maybe a little bit later on. What is going on with AI companies and if. 

Pablo Srugo (00:04:57):
Sure.

Peter Walker (00:04:58):
They are, many of them. At least the hottest ones are real investable opportunities. Because I'm starting to get that bubble itch a lot lately.

Pablo Srugo (00:05:08):
It's hard, man. Yeah, it's tough out there.

Peter Walker (00:05:11):
It's tough out there. Next thing for founders specifically, I think this is maybe the most immediately useful piece of data. Which is how long is it going to take between these rounds? How long do you have to plan to use this cash for? It used to be that the standard VC advice of, you're going to fundraise every 18 to 24 months was pretty good advice. That was good advice for five or six years. Now that is maybe bad advice. because it is taking from series A to series B, for instance. It's the median amount of time is over two and a half years and the higher end, the 75th percentile is well over three years. So if you are one of those golden child, hot AI companies. Sure, you're getting term sheets every week. You could fundraise whenever you want. If you are not in that cohort and that cohort is pretty small. It is going to take longer than you think to fundraise. So you got to plan for this cash to last you a while. Because what you don't want to do is to get into a place. Where one, you're six months from closing down and your burn is really high, and you need cash. That's a difficult place to fundraise from. But two, you also don't want to be relying on so many bridge rounds. I think bridge round behavior and sort of the new theory of. Well, my leads are just gonna lead a bridge and it's gonna be fine. I don't need to raise the whole thing now. I think that gets people into trouble.

Pablo Srugo (00:06:34):
I think, I mean, this is. It's pretty incredible the change, right? So to be clear, this is like for looking at seed to A. Those who raised in 2024 and then raised in A at some point. It took them 2.1 years on median. Is that a right reading? So, I mean, if you look at that. It used to be 1.6, like one and a half or so years. Now it's two, but the other thing is you look at the 75th percentile. The other way to think about it is, you have you used to have a one in four chance of it taking two and almost a half, a little bit less to raise an A. Which you can kind of think as within the planning of worst case scenarios. That's kind of your worst case scenario. Assuming you're going to raise an A at some point you might think about the fact that it might take a little longer to use. Now that worst case scenario planning has you looking at like three and a half years. And that's a one, we're talking about one in four. I'm talking about ninety-five percent. One in 20, very unlikely. We're talking about, you know, you raise a seed at least in 20. Maybe it's changed, but the latest data would show that if you raise a seed right now. You have a one in four chance of it taking three and a half years or longer to raise an A. Which frankly, I can tell you, no one is planning for, no one. Literally nobody is purposefully, like some people over-raise and they end up with a lot of money. And they end up being able to make it that long, but nobody is objectively trying to fund three and a half years worth of runway.

Peter Walker (00:07:59):
It's not a  model that exists on the investment side. So this is the big question is, what is behind that number? Is it all companies who are just desperate to raise and can't do it? Or is it also reflective of companies who raised a seed round and they're looking around going, I might not need more cash. The seed strapping phenomenon and I can't. As much as I try to dig through this data and figure out. How to show seed strapping and if it's really happening. I just can't figure out a way to show it. Because we don't have the null case. Like if you don't raise, you don't raise and I don't know why you didn't raise. So there's something behind there that's causing me a little bit of anxiety. I don't know if you see explicit seed strappers a lot or if that's just kind of spoken about and it's not actually happening. I would love your opinion on it.

Pablo Srugo (00:08:50):
I still think there are companies and we have companies that are like this idea of maybe getting to profitability is sexier. Let's say, or more well adopted today than it was in maybe the, even 2019 to like 2022 period. But still, most founders that go into this game. They're pretty ambitious and so if they have insane growth, not always. But very often, and they have a story that VCs will buy. They very often go out and try to sell it, and raise. Maybe they push it off. What I've seen happen, you know, anecdotally is there are companies that for whatever reason don't fit the mold of what's hot right now. And I think those companies maybe have less heartburn about that fact. And they just kind of put their heads down, and just keep growing revenue. And at some point the rest of the world wakes up, because at some point it becomes undeniable. Like, oh wait, you're at $20 million, you're at $30 million. Okay, maybe I'm wrong. Maybe this is a great thing, it's a huge thing and then they go out, and they raise. And so maybe there's more of those. Whereas before, I don't know, they would have had more anxiety about the fact that somehow VCs don't like them. That seems, but I don't, like. Is it common for people to seat strap these days? I don't think so. Because again, I think if you have that crazy market pull. You're going to want to lean into it, and money's still money. You know, it still buys a lot of things.

Peter Walker (00:10:11):
Yeah, money is green. Capital is hard to refuse. I feel the exact same thing. I just think that this whole idea of seed strapping is interesting and some founders are almost certainly pursuing it. But as a general asset class, VCs are okay. They're having a lot of deal flow. It's not like they're running out of people to invest in. So, brings us to valuations a little bit. So, this is again, I start to just see AI everywhere throughout this deck. Even in charts that it's not explicitly called out in. So, median valuations over time. In 2022, Q1, which was the old peak. They hit about $14 million.

Pablo Srugo (00:10:54):
This is seed stage valuations, yeah.

Peter Walker (00:10:56):
$14 million pre-money, expensive. Now they are at $15.6 million and in Q2 they're going to be $16 million or so. So it is pricey. This does not factor in inflation. So on a purchasing basis, maybe it's just about where it used to be. But even so, these are expensive seed stage companies. These are really expensive seed stage companies. The other part of this chart, that those of you can see it, is I just think that it's pretty obvious fewer and fewer rounds are happening, But those that are happening, generally speaking, are happening at higher valuations. So there's an in crowd and an out crowd. And the bifurcation between those two things has never probably been wider than it is today.

Pablo Srugo (00:11:42):
It's crazy to see, when you see it. I mean, it just, you know, pictures, thousands of words or whatever. The just steady, like we're talking about three years worth of steady decrease in volume and at least two years worth of steady increase in valuation. So more and you can assume the dilution probably hasn't changed. I don't know if that's a good assumption, but I would assume that it hasn't. Which means the rounds for those getting it. If you were even at seed, fewer companies, like now half as many as three years ago. Are getting twenty percent more capital. So it's more like, which is actually a weird thing. I'm just thinking out loud here, it's like somehow the industry is deciding to make fewer bets and make every bet higher conviction. Twenty, thirty percent higher conviction than it used to be just based on size. Which intuitively like I don't want to go against the market but intuitively I'm like it doesn't foot. Because the whole thing is who the hell knows what's gonna happen and you do want like a thousand, and tens of thousands of companies to get seed funded. And then TBD which one grows right?

Peter Walker (00:12:41):
As an asset class, you're totally right. Again, I put out this data a while ago that pissed some VCs off about portfolio theory and how I think most seed investors do not make enough investments. And they're like, no, you have to concentrate. That's the only way to win, et cetera. There's a lot of different debates about that. But remove that from an individual investor basis. Just look at venture as a whole. If you wanted venture to be very healthy. You would want venture to invest into a lot of different kinds of seed stage companies. Some of which don't have the metrics and are just weirdos that might work, right? That's kind of the point of venture capital. That is not the point of venture capital right now. People are concentrating money into very consensus founders.

Pablo Srugo (00:13:23):
Yes.

Peter Walker (00:13:24):
Spun off from an AI lab? Congrats, here's a billion dollars. That is what's going on. That's where a lot of capital and time, and effort, and attention is going. So, and it never has felt more like there is a people in the sun that are AI native or somehow have the right credibility stamps and then there's everybody else. And that, again, that bifurcation is always true in venture. But it feels especially acute right now when I talk to founders that are not in that, you know, sunny category.

Pablo Srugo (00:13:53):
The only way I could make sense of this and it being rational and correct investing. Would be to think about it as. Because of AI, there's almost this new forest that just opened up and there's all these low-hanging trees, and all this low-hanging fruit. And if you're going after that low-hanging fruit that are so obvious that everybody gets. Then you're going to get funded and everybody's going to go fund it. Because it's this huge new opportunity. If you're doing anything else, nobody's there looking anymore and, you know, in that there's something there that's like, okay, that actually is aligned with the idea that I just opened up. So because that is true, I see an anecdotally where, what would used to be insane value has totally changed like it used to be. Think about the edge of B2B SaaS, like the ending years and you're picking at these marginal things in this like small niche place. And trying to use more software to do things. Because all the obvious opportunities kind of got taken, right? And now with AI, it's like, oh, all of a sudden you don't need to do this anymore. All of a sudden you don't need to write anymore. All of a sudden, you're like, okay, this is no brainer value. Of course, everybody else can do that too. But that would be the only narrative.

Peter Walker (00:15:00):
This is though all the software categories that were completely mature and you know, no one's going to build in CRM, Salesforce one. 

Pablo Srugo (00:15:07):
Yes.

Peter Walker (00:15:08):
Now it's, no, CRM is back on the table. Do whatever you want. 

Pablo Srugo (00:15:10):
Exactly.

Peter Walker (00:15:12):
The problem, and I think that that is both true, and not enough. Not sufficient to explain what's going on. Because the problem with that thinking is, okay, we are going to fund these greenfield. Quote unquote, greenfield opportunities as though there's no incumbents. One, there are incumbents and they're moving into AI really quickly. And two, those niches get filled. There are a hundred AI-powered CRMs now. So pouring money into the eighth best new AI native CRM is a waste of money, and it will be over time. It's just that right now the bubble is bubbly and it feels very like all these concentrated bets are just eating cash. The dry powder thing and when you look at what's going on with really big venture funds. Which are barely even venture funds anymore. There's some new kind of institutional capital. They are completely price insensitive and they are just pouring money into whatever they think has the potential to be generationally returns. And they're not really caring about price. Which is a weird place for people that don't have that capital to play in.

Pablo Srugo (00:16:19):
I think there's some good some good fallout here in terms of like action items for founders. Either you're in these categories, if you're not. If you are and I was talking to a founder who is in one of these not long ago. He's in a vertical that happens to be hot and he's doing in that vertical. So he's got hot times two, right? And he's getting money thrown at him. Nothing insane, right? But, it's just, he feels like he's been through it a few times. It's like, wow, it's so easy to raise right now and I think. You want to be a seller when everyone's buying. So I think if you're in that case, raise that money. You don't know how long that insane heat is going to last. So take it in at low dilution and spend it wisely, but don't be crazy about it. Don't just assume the tab will keep flowing.

Peter Walker (00:17:00):
I think that a lot of founders that are in that category are thinking the same way. Which is, I need to strike now, I need to raise now. Because I'm never going to be more in demand than I am right now. But am I the kind of person that has enough discipline to not spend the money? And that is the real key. Because right now, I think, Bessemer just came out with a report around the state of AI this year, and they were segmenting it by the really point one percent. The cursors, the people everyone talked about that are doing $100 million of revenue in like two years or less. And then this sort of wider portion, they call them shooting stars. That are doing what used to be very good software revenue. But it's not as crazy as $100 million a year. And for those, like that second category of companies. You actually do have to spend in a more reasonable way. There's only so many companies in venture that get to spend money like money is free forever. OpenAI can spend as much money as they want, whenever they want to. It's going to be free for them for a long time. You're probably not Sam Altman. So that is a good point for founders. Even with an AI, what kind of AI founder am I? Where do I see the AI spectrum? Because sooner or later, like we're showing a chart right now. That shows seed stage valuations for AI companies being forty to fifty percent higher. I am pretty sure that in the next two years, I'm just going to stop reporting on AI.

Pablo Srugo (00:18:31):
Yeah, everything's going to be AI. It's not even going to make sense anymore.

Peter Walker (00:18:33):
I don't report on JavaScript. It is going to go away as this category. We're just going to talk about software. If you're thinking about that, the valuation multiple and premium, et cetera. It has to compress in some way unless we just really are creating $500 billion companies every week. Which I kind of don't think we are.

Pablo Srugo (00:18:55):
Yeah, I think I mean, reporting on AI in a few years is going to be reporting on Internet. Like, are you an Internet company? You know, what are you talking about? And so it's not like B2B SaaS. B2B SaaS is a category. What would it be? Because you have consumer, you have marketplace, you have different business models, but like AI is infusing into everything. So I fully agree with that and I think the other thing I just want to say is if you're not in that AI category. You do have two huge data points. One is, it takes way longer than raising A. B, there's half as many deals getting done and most of those are not getting done in companies like you. So you really have to, I think, adjust to that reality and know that it. By the way, does not have any, in my opinion, material like change in your odds of success. I don't think it actually matters. I think it's just, it will if you don't adjust. If you just assume that because you hit a million ARR and but you're not in AI. You're not in these hot categories in 18 months. You're going to raise an A. Then you're operating under false pretenses, if you adjust and you realize you're just gonna have to prove a lot more. To get what you used to get but as long as you're in a real path. There's so many companies that were just not hot until again $10 million, $20 million, $30 million. Then they're super hot. That's just the path you're going under. So you just have to manage accordingly. But you have to you have to be aware of where you are where the market is

Peter Walker (00:20:19):
I love the idea of, one, of course you need to know where you are within the market landscape. But two, and maybe even more importantly. You need to understand that that landscape shifts. Look back at the 2021 champions for a second and say, those people were raising just like AI companies were raising today. They were getting all the term sheets from VCs without even asking some of them, et cetera. And many of them are looking back now four years later. And saying, wow, I messed up, right? I took a crazy valuation for not enough cash. My business was not defensible in a new world and that new world aspect is the key point. Nobody really expected interest rates to shift the way they did in 2022, or at least they weren't acting like it. But once interest rates shifted. We found out that many of the companies we funded in 2021 were not fits for a high interest rate world. They were really low interest rate companies that they only worked in that environment. And so as the environment changes, the competitive landscape will shift and some of these companies that look great will die out. Is there a place where that is going to happen with AI? I cannot imagine that it won't. We're in the definition of a bubble period right now and there is no way that this bubble doesn't pop. Now, that doesn't mean that some of those companies won't be generational. I'm not really worried about OpenAI going out of business. But I am pretty worried that a ton of AI companies that are raising right now with not that much differentiation. They're just growing revenue quickly because people are trying it. They're going to get found out in some way. So if you're not in the sun. If you're building a different business that is not giving the investor attention. Take that as a badge of honor and know that perhaps your time is going to come in a while.

Pablo Srugo (00:22:07):
I think that's totally legit. Because what is a $5 billion business? What is a $10 billion business? It's not just some early growth. It is sustainable moat, you actually own a position. If you look at the $5 to $10 billion companies that have been around for a decade, let's say. They own a space and you can't have 10 companies own the same space. And so what you're having now is insane value delivery through AI. And as a result, a must have aspect in terms of at least trying all this stuff out. You just have to try this stuff out. Because you're crazy not to. That doesn't mean that you're the winner. It doesn't mean that there aren't 10, 20 others of you. It doesn't mean that they stick long term. All these other things are implied in these valuations, but only one of the 20 is going to be king sort of thing.

Peter Walker (00:22:58):
Yeah, it's definitely worth trying out, and I mean, you know, we're showing a slide here. Which shows all these industries versus one another on a plotted map. So it's a scatterplot with all these bubbles and each bubble is an industry. So you've got some places that are raising really big seed rounds at high valuations. Then you've got other sectors in startups that are raising small seed rounds at small valuations. Again, if I take a different snapshot of these bubbles at series A or over a different time period, they'll move. They always move landscape, but I do think that especially if you are a founder in industries that are kind of not in favor right now. So food and beverage, DTC retail, ed tech, sadly, personal products, some like, you know. There's different bubbles that are like kind of less sexy at the moment. It doesn't mean that you're building a bad business. It just means you have to be aware of the capital environment that you're in. 

Pablo Srugo (00:23:53):
Yes, exactly.

Peter Walker (00:23:54):
Because if you get ahead of your skis on capital. That just kills your business super easily.

Pablo Srugo (00:23:58):
It's great to be different. You're going to be different for longer than you want, and you're going to have to survive that time. That's the key.

Peter Walker (00:24:06):
All right, let's also talk a little bit about dilution and then we'll get to the revenue piece. Which I think is pretty fascinating. So the weird thing about this moment, pretty weird to me at least, is if I had shown this chart that we're showing now. Which is just how much do founders sell in each round. If I had shown that for the last, call it four years, five years. Seed in A, don't move. They're always right around twenty percent. A little bit higher, a little bit lower, but they just sit on that line. And what that tells me is the dilution for a given venture-backed company. Has more to do with the needs of the investors than it has the needs of the founders. And so founders don't get screwed by a bad deal. But realize that the numbers that you're coming to in negotiation with your investors are driven at least as much, if not more. By the investor's ownership needs than by any sort of real estimation of how much cash you need to raise right now.

Pablo Srugo (00:25:09):
You love this show, you don't wanna miss the next episode, why would you? So hit that follow button. Trust me, it's in your own best interest. It's a fallout of most portfolio construction, frankly. It's like I'm gonna do 25 deals, therefore I need the big one to have this much multiple to return the fund. Assuming I invest this much, which means I need to own fifteen to twenty percent. You know, and everything's kind of built from there. 

Peter Walker (00:25:32):
I'm expecting that I will, if I'm leading a seed round. I may again do pro rata at the A. But I'm not going to lead the B and the C. Because I'm a smaller fund and I don't have that cash. So I buy fifteen percent or so and I expect to hold it for a bit and then watch it decline over time as this company gets big. It's a standard portfolio model for funds. But I don't think founders spend a lot of time thinking about what their investors are optimizing for, and so you can use that to your advantage in a negotiation, right? If the investor is optimizing for ownership and you're optimizing for something else. Control, whatever, you can play those two things if you have demand for your company. But in general, I think this also points to venture as an asset class used to be like wild west. Everyone doing different stuff and now it's really consolidated on a. This is the venture model and many people go through that same sort of process. Okay, let's talk about the big one. So this is upfront, not Carta data. We're working on getting ARR data for ourselves. I hope to have more to share about that later, but this is data from Silicon Valley Bank. They're still around, by the way. Slightly different name, but they are still here. And they track a ton of U.S. B2B companies, and so this chart just shows you revenue at the time of Series A. So it used to be in 2021 that the median amount of ARR for a Series A company is just above $1 million bucks. In 2024, that was nearly $3 million and on the top quartile. So 75th percentile ARR used to be in 21 about $4 million and now it's nearly 7. So again, the revenue expectations from investors for your company to raise a Series A . Have two to three X depending on who you are. That is a really big deal. So again, if you're walking into a conversation with a Series A, VC and you're walking in there with $1.5 million bucks of ARR, Two things better be true. One, you better know that and adjust. And two, you better be growing, really quickly. Because if you're not growing that quickly and you walk in with $1.5 million. Series A investors are probably going to go, no thanks.

Pablo Srugo (00:27:50):
This is the part, that's most confusing even to me. As someone who's on the investment side in this game. The bar has moved so much. Let's look at that median, right? So from one point three to three, in three years. It's doubled in three years. What you need to do to raise an A and what is? That can't happen magically, you know, you need some input to get that output. So, and I don't know, but you have data on bridge rounds that's not great. So I don't know if these companies. You know, how is the median company getting to $3 million ARR off like a $3 million seed? Doing a one-to-one that early is not trivial at all.

Peter Walker (00:28:40):
No, it's really hard and I think that this is where some of the idea around optips and Venture comes in. So, yes, these medians are expanding really quickly and this is, I think, pretty good data from SVB. But what's not shown in the data is that investor expectations have changed just as quickly, if not quicker. And what's happening there is everyone is always looking, even if they don't say it. Everyone is usually benchmarking against what is the thing that's going on in the venture world. And what's going on in the venture world right now is, lovable going to, what? $80 million in ARR in eight months. That is the kind of new expectation of this is what great looks like, and now they're not expecting every company to look like great. But pushing great up means the Overton window of startups also moves up. So you kind of have to like, you're not. You have to swim even faster just to maintain your current place and that's something that a lot of founders are probably struggling with. What this chart doesn't show is anything about whether or not you're close to profitability. My expectation is that the vast majority of these companies are nowhere close to profitability and that's okay. I think there was a period of time where we talked about capital efficiency and unit economics growth being incredibly important at the early stage. I got to be honest, I think most times VCs are like, grow really fast and we'll figure it out.

Pablo Srugo (00:30:07):
Yeah, that's the reality. Because if you if you have growth. Then you at least have a shot at being an outlier. That's the other thing, right? It's like you're looking for outliers and it's like you don't know when that insane growth is going to happen. But you know, if it's going to be an outlier. It must grow insanely at some point. Maybe it's at the B or C, whatever. But, so if you see that, you're like. Maybe this is the point and you bet if you don't see that, you have to assume that's going to happen later. Even if you're super efficient and all these sort of things. So it's kind of like, because it's a precondition to being an outlier. I think it's always going to be top valued. Growth is the number one thing.

Peter Walker (00:30:36):
You just said a really important thing though. Which is there are companies for whom the explosion of growth happens later. That does happen, but the problem if you're a VC is if you're not seeing it at the early stages. It's very difficult to imagine it happening later. Because this is when growth is, those multiple growths at least is easier. You're working off a smaller base, so, and you should be attacking. If your market is really deep, you should be attacking your like most excited. The people who have the deepest pain should be the ones that are buying you first. So that would sort of necessitate that you're growing incredibly quickly at the beginning. At least most of the time. So it is a little bit of like, if you don't have the growth rate now. What reasonable expectation can I have that you're going to somehow massively improve your growth rate as you get bigger? That's hard. It's really hard.

Pablo Srugo (00:31:25):
Yeah, I think that's true. and I think the other thing is just like you're betting on something. If you know that insane growth is a precondition to being an outlier. Well, if you have insane growth, you've checked that off. Now I have to think about other things, but like you've checked it off. If you don't, you haven't checked it off. I have to assume you're going to check it off in the future. Which is just a harder bet. There's just going to be fewer people that make that bet and it's going to lead to less term sheets and these sort of things. I'm just curious. I don't know if you have data on that. Those people that got the $3 million. Something around, you know, how much they've raised to get there. Have they, because if you're expected to go twice as far. Are you raising twice as much? That would make sense to me. Otherwise.

Peter Walker (00:32:01):
You're, I think you're raising a little bit more. But you're not raising twice as much. So in some ways that the capital efficiency of that growth has to have improved in certain ways. Now, again, there are examples, both pro and con here. There are examples of people growing really profitably, and then there are examples of people who are burning money like it's 2021 and growing. Growing really fast, but are in the hole for millions and millions and millions of dollars. No doubt, that's always the case, and the margins that are reporting across startups. Oh boy, that is, if any data set I'm skeptical of it's anytime you talk about margins for an early stage startup. I don't even think that many people know.

Pablo Srugo (00:32:43):
You know, just to riff on this for a second. This is what I'm having as a challenge, right? You think about, okay, a pre-seed is what's the meeting pre-seed these days? A million, million and a half?

Peter Walker (00:32:50):
Yeah, a million. Million and a half.

Pablo Srugo (00:32:52):
So like you're a good team. Let's say, with a solid idea and you've got little to nothing. You get a pre-seed for a million and a half on GoBuild the actual V1 of a product, deployed to a few customers and come back when those customers are saying like good things. Okay, so you do that, but you're at like no ARR at that point. You could be at $100K, $500K of ARR. You know, something like that when you come raise the seed rounds. Okay, cool, you got some customers. They're using the thing, they love the thing, now you want to hire a few more people. You got to polish the thing and then you want to start like actually selling it with a couple of people and maybe a marketing person, whatever. Okay, so here's like what is it? $3 million, that's the median seed. Okay, so now with $3 million, you've got to go from like $300K or $500K. I wonder if you have this chart for a seed, but otherwise I'm going to assume your average CDR is like $300K, $500K and you got to go to $3 million, you know? You're $3 million bucks to go do that. You have to spend this $3 million on a one to one ratio if you're going to hit that and that's just median. That's not even you're killing it. It's just, dude that's, I just. I'm like, man, how many people can do that? Do you know what I mean? It just seems so outlandish versus, okay, you've got to go from $400K to one and a half. Which is by the way, still very hard. But okay, I get it. You got to use $3 million to get to one and a half. Like that, I understand. So anyways, I'm having trouble with this new world.

Peter Walker (00:34:08):
I think this is why you see fewer and fewer series A rounds getting done, right? Because fewer and fewer people 

Pablo Srugo (00:34:13):
Yeah, right.

Peter Walker (00:34:13):
Are figuring out what everyone's imaginary bar is. Now, again, we get back to, what is good for individual investors and what is good for startups as a whole. My instinct is that it would be better for more investors to take chances on people that are not growing this way. That are still building in super interesting spaces or have some unique advantage that isn't represented in ARR quite to the same extent. And of course, whenever we talk about these numbers. We're basically talking about B2B software companies. But there are a whole lot of other kinds of companies. One of the interesting things that somebody pointed out to me the other day is B2B versus B2C. A lot of the biggest successes so far with AI native companies function in B2B spaces. But sell as though they're B2C companies. Like Cursor can be bought by any dev.

Pablo Srugo (00:35:01):
Yeah, very self-serve like consumerization.

Peter Walker (00:35:03):
It's kind of like a consumer-esque go-to-market model. But they're selling to companies and then they have enterprise feature sets. So it's B2B to C. There's a weird mixing with AI where it kind of feels like, hey, we can just sell directly to people even though we're a B2B company or we build B2B product cases. Those lines are getting blurred for sure. Okay, let's talk about teams. This is perhaps the biggest shift in startups. Which is just teams are smaller. Everyone's talking about it. The headlines are true. If you are building, in startups right now, especially if you're building an AI startups. It is the expectation is that you're going to try to do more with less. More with fewer people.

Pablo Srugo (00:35:47):
This I love by the way, this is like.

Peter Walker (00:35:49):
Yeah. 

Pablo Srugo (00:35:50):
In terms of. 

Peter Walker (00:35:51):
This is good, right? This is I have worries about it long term. In terms of like what happens to startup employees. But I think in terms of the individual companies. Again, this is a good thing. So if you used to have, say, 20 people, 22 people at your Series A company when you raised that round. That was two or three years ago. At the end of 2024, we had it at 15 people per Series A company that raised it in 2025. The number is now like 13. So that's a massive shift from 20 to 13. You're moving faster with fewer headcount. That's the story.

Pablo Srugo (00:36:25):
Which I like it for what it's worth. I'm looking at Series C, by the way. For second year, it dropped from 100 to 75. Now it's back to 79. You think that drop to 75 is just a result of more, like, you need the efficiency because 2022 is so bad or AI? It feels like too early for AI. 

Peter Walker (00:36:43):
No, it's not AI. So any drops that you see on these charts from say 22 to 23 or even candidly 23 to 24. I don't want to describe much of that to AI. I ascribe a lot of that to just the new meta around startups of try to stay lean as long as possible.

Pablo Srugo (00:36:59):
Because what I like about it is, less like forget efficiency for a second. Obviously for any given ARR you have fewer people, you're more efficient. But I'm talking about odds of success and I'll go on a limb here, and say series A. 15 people, all else equal, over 22. I just rather, you know what I mean? You just, one of your edges at early stage is the lack of overhead. That is one of the edges and I think many, especially I would argue first time founders who haven't been through it and the pain of managing teams before. Is the first thing they give up. They're like, you got the money, hire the people and look like a bigger company. And it's like, you don't have all the upsides of being a bigger company. Like crazy amount of capital, brand, et cetera. You have the advantage of the overhead. Don't give that one thing up. You know what I mean? So when I see 15 people, I'm like, 15 people is easier to manage than 22 and these are median. So there's going to be like whatever, the 75th percentile. So anyways, I think it's good for the success of companies.

Peter Walker (00:37:57):
I agree and I think that one thing about managing big teams. That people don't understand is the gap between, say, 20 people and 15 people. Is not five, the gap is five factorial.

Pablo Srugo (00:38:10):
Yes, correct. Right.

Peter Walker (00:38:11):
All of the relationships of those extra five people, to the work that had already been doing. So it is not it. This does not scale linearly in terms of complexity. It scales exponentially and that is why big companies. That's the coal innovators dilemma in a nutshell. It's like big companies cannot by definition, move as fast as small companies. Because they have to manage the interpersonal relationships of all those people trying to work towards a goal. 

Pablo Srugo (00:38:36):
I would say.

Peter Walker (00:38:37):
I also a little bit. I'll be completely honest and say slightly all, you know, we talk about AI in very abstract terms. And we say, oh, it's going to cause this amount of job loss or it's going to cause this amount of job gain, as we gain new use cases. I tend to be more of an optimist, but the luddite part of me does get a little worried and say like, look, if a goal is a one person unicorn. What are those other people who would have worked for that company going to do? For their work, right? I don't know, maybe it's too early to really, you know, opine on that kind of stuff. But it scares me a little bit.

Pablo Srugo (00:39:12):
Yeah, it comes and goes, right? I know with GPT-5, it was like, you know. With Q*, it was like, oh my God, it's over and then GPT-5 comes out. And it's like, okay, it's just another, it's bad.

Peter Walker (00:39:21):
Everyone's safe, right?

Pablo Srugo (00:39:23):
You know, yeah. We're still safe sort of thing. So I really don't know, you know, oscillate back and forth. Towards the classic argument of every technology is scary and then people adapt to the other side. Which is this one's moving so fast, and it's so existential. It's gonna be different. I really don't know where that lands, but in the meantime. I mean, man, even for me. I don't know about you. Like on your, I've started put it this way. For the first time ever I have had Claude specifically, cause ChatGPT can't do it. But I've had Claude write some of my LinkedIn hooks and my LinkedIn posts. And some have actually done quite well. I still edit them and stuff, but I'm like, I'm getting hooks from it that I actually think are solid. Whereas even six months ago, and even in GPT today. I'm not getting that. So it's, you know, starting to be true value.

Peter Walker (00:40:14):
I'm with you. I'm using these. The place that I find most value from AI today is in the workflow, just like data management. So, hey, this company on Carta has a messed up website or the industry doesn't make sense. Go figure that out for me, replace it in the database system, and then re-output the metric that I was looking at. Because this thing was incorrect and it's so nice. He used to waste so much time on data cleanliness and how to go back, and fill in missing data if it was entered in by a person. So much of that stuff is great, and in writing. I don't really write too much of my LinkedIn stuff with AI, but I use it as a thought partner a lot. No doubt, I mean, okay. So back to the startup side, two things on teams, the rest of it. So first, this is a chart of initial team members. So when do founders hire their first employee? It's longer, they're waiting longer from incorporation to first hire, than they have in a long time. So same idea here, founding teams getting together saying, we have an idea. We can build it ourselves and we can start selling it ourselves. And we don't actually need to hire until we really feel that pull from the market. So I think this again, good for startups, good capital efficiency, a little tough if you want to be the first hire to startup. But hey, maybe you're going to be a founder instead. I hear you a lot, and so then the weird part is that this data. Which is how much do you pay those first hires, hasn't really changed much. I mean, this is data from 2024. But the 2025 numbers are right in line with this. Where you might give that first engineer one and a half percent of the company, maybe two percent of the company. That's been pretty standard for a while. It's not like the engineers today are getting five percent of the company on a regular basis. So again, you know, if you have a smaller team. You might've expected, okay, each of those team members gets a little bit higher percentage of the business. But we haven't seen that really yet and I thought. Honestly, with all the stuff that's going on with talent. All the meta aqua hiring and whatever. That we would start to see it in the super early startup space. But again, we just haven't yet. Maybe it's just out on delay and we'll see it over the next few months.

Pablo Srugo (00:42:36):
Yeah, I think it would. I don't know, I could see this being lagged, right? Just because, okay, you've got your ESOP. Let's say it's 10 percent. You've got like your comps. Which people do use. What it would, you know, people do look at it. So it always used to be one and a half. And then they point to the comp and until the kind of market can readjust. And there's kind of that push and pull between what used to happen. And what the new reality is. I could see that just taking time versus a founder kind of saying, Oh, I'm going to hire twenty-five percent less people. So everyone's going to get twenty-five percent more. I just, you know, what I mean? I could see that taking a few quarters, frankly. 

Peter Walker (00:43:13):
A hundred percent and I think that's what's happening here. And so then, yeah, you just get to general hiring. So this is a report that we're going to put out again, really soon just on startup comp in general. But the easy takeaway from this chart is startups are hiring way fewer people. Way, way fewer people than they used to. 70,000 new hires across Carta in 2022 in January. January of this year, it's probably going to end up at like 26,000. So from 70,000 to 26,000, obviously there was a lot of over hiring happening in 2022. Early 2022, when everyone was super buzzy and excited. Now every single hire is being scrutinized. I'm sure you hear it all the time. Which is when somebody proposes a new hire. The first thing that is asked is, well, can we do that with AI, right? Do we need this person? And that case just resets the bar in terms of how impressive that person needs to be and how painful it would be to not hire them. And many, many companies, and I kind of think people are underrating the example of Elon in this case. I do think if you're looking for a starting gun to say, when did this all change? It was Elon buying Twitter and firing like eighty percent of the people, and then it still worked. And I have a ton of problems with X. I don't think it works that great. But it definitely works, right? And it's not like the business is shutting down. So to me, that was a wake-up call moment for a lot of people across tech, and a lot of founders respect Elon a lot. And say, look, if that's happening at that bigger company. That could be true for us too.

Pablo Srugo (00:44:52):
It's a really good take. Because, you know, when I talk to people from outside the industry and you take an established product, even an Uber. Let's say, and you were to tell them how many devs. Which I actually don't know the answer, but I'm sure it's many thousands. Maybe tens of thousands of developers and they would say to you, how are they doing? The app doesn't change that much. You know what I mean? Like, come on and so there's this. But it's, if you're in this tree, you don't ask that question, dude. You obviously need a lot of devs, right? And I think you have an example like that. Plus market forces that are pushing you towards that AI, but also all the insanity that happened then and whatever. The downfall, like, there's so many things. But then you have an example like that and all of a sudden, it's not good enough. It's not good enough to just say, well, we've always done it this way. Well, we always needed this. Here's an example where we cut it by four-fifths. So, you got to answer the question.

Peter Walker (00:45:37):
And I'm sure that not only were founders thinking about that themselves. You can be damn sure that boards were coming to founders after.

Pablo Srugo (00:45:44):
Yes, exactly.

Peter Walker (00:45:45):
What happened and saying, hey, are we a hundred percent sure that this is the amount of people that we need? Because I have examples and examples matter. Salient examples really matter of people doing it with forty percent less, fifty percent less, et cetera. Once that starts going around, you as a founder don't want to go to your board and say, oh, I haven't thought about it, right? You have to have an answer to it and sometimes that answer is, yeah, we actually don't need to hire or we could cut. And it's and that's I think the story of the last three years has been. What right sizing really means is nobody knows exactly what the right size is, but it was too much before. So we're going to we're going to keep moving. All right, there's a couple of slides in here on ownership. I think we can just do a real quick check-in. So, this is a question I get from founders a lot. Which is, how much of my company should I own? What does good ownership look like? So, when you start out. People typically have an employee pool and the founders, maybe an advisor or two, and that's basically it. So, the founding team still has, call it ninety percent of the company at this point. You haven't raised any pre-seed, and then you just start setting aside maybe a ten percent pool for employees. Basic breakdown, the founders still own a ton of the business. When we go on, you can see that, and this is a chart of just like a median cap table as an example. The founding team after their first priced round, which in this case will be a priced seed round. So real institutional capital in the business now. Own on median fifty-six percent of their own business. So from ninety percent to fifty-six percent after their first price round. That's a lot of dilution, people. Oftentimes founders go, whoa, how did I lose that much? What happened? So here's what happened. You sold twenty percent of your company to the investors in that seed round. So that's twenty percent. The employees own maybe ten to eleven percent of the business and own is strong there. They are allocated that you probably haven't given out all those shares, but the allocation is call it ten to twelve percent. And then you've got your pre-seed angels, your pre-seed investors, anybody who gave you money on a safe. And there are a lot of safes flying around. And they own eleven percent. So you add that up, and yeah, that's close to half of the business, already after one institutional round. And this is why people get so upset sometimes by safes. Because they give out money as though it's free, and then they come to their conversion moment. And they go, whoa, whoa, whoa, whoa, whoa, I didn't realize I sold that much of a business.

Pablo Srugo (00:48:21):
I think this is. I mean, especially when you go to series D, right? You got the ownership team, the founding team, I should say, owning. I'm gonna say ten percent, it's eleven point four, but ten percent. And I think the line that comes to my mind when I think of that is, raising money is not value creation. You raise money, you don't create value and so when you end up with a $2 billion valuation. And you've raised half a billion dollars. Well, and along the way. It's not like you raised all the half a billion at $2 billion. You raised it along the way. Your return on that capital is not great, right? If you're half, even that's a half a billion, you're worth $2 billion. You start 10 years ago, you 4x, you want to think about it that way, right? You kind of 4x capital in 10 years, that's okay. You're not going to make, a billion dollars from doing. Not going to get, fifty percent of that value. It doesn't make any sense and so. And I think it's just an important thing to kind of remember, every time you raise money, you're not creating value. You're creating value when you grow that business and I think this speaks to just how many of these series D companies are. They're not going to say they're paper unicorns, like they're worth that. But they're worth that because they've raised so much. You know what I mean? This is back and forth about it.

Peter Walker (00:49:32):
They're kind of paper unicorns. I'd actually say that some of them. So, we did this study a while ago. Where we looked at all the companies that became unicorns before the end of 2021 and this was beginning into last year-ish. And we said, where are you now? So, one, a lot of them, like at least half. Have not raised any more money. Probably because they raised massive rounds in 21. So they had a little bit more cash, but also because they were cutting staff and they changed their businesses pretty significantly. Of the companies that had raised capital since the round that made them a unicorn. Almost half of them took a down round. So that's them saying, look, we got over our skis. We were not worth a billion dollars and there's a whole host of companies that even today. I would say, have been unwilling to take the down round or take the medicine and that, I think, sets them up to be. They're not IPO candidates in the vast majority of cases. The question is, are they even good candidates to get acquired by somebody like a private equity shop? If the valuation is too high. Those conversations are really hard. Because what that means is everyone who's already invested in the business needs to get crammed down in order for it to make sense, and people have different incentives. And they do not like that conversation. So it's, if you raised at the peak. Like raising too much money at a really, high valuation can be a business killer. Just like having too little money can. They're both problems.

Pablo Srugo (00:51:05):
I wanna make sure, I know we're gonna talk about exits. Let's talk about exits quick too and then I wanna just go through that one chart you have. I don't know if you have pre-seed to seed conversion, but at least seed to A conversion. Just get the quarterly update on that. That'd be great.

Peter Walker (00:51:16):
Totally, totally. Okay, so exits. Number one, there are more companies getting acquired this year. So that's a good thing. Q1 was the highest number of companies we've seen get acquired off of Carta ever. Most of those companies are still pretty small companies. We're talking seed, A, maybe even an acquihire, and you haven't raised institutional capital yet. But even within, say, the series B and beyond. You did see an expansion of the number of companies acquired. So it seems like Gobbling up startups is a thing that is back on the table. We've seen big tech do it. We've seen private equity do it. We've seen other startups do it. It is back as a exit pathway, which is good. Secondary volume, a big, big topic around this is like data from only tender offers on Carta. There's a lot more Carta secondary data we could get into, but in general. This is also a part of the market that is coming back. The thing about secondaries, we write a lot about them, you hear a lot about them. They are typically, again, reserved for those really, really hot companies. 

Pablo Srugo (00:52:19):
Yes.

Peter Walker (00:52:20):
It's a power law industry, just like everything else in startups is power law. If you are in the sun and you have tons of investor demand. Sure, you can sell secondary. If you are not, good luck. The way that I would use to put it is, imagine every single startup in the world was public and you could buy, and sell their shares whenever you want. The vast majority of startups would have no trades. Because nobody wants to buy their shares. That's why they have to work so hard to raise that round from one special investor who's excited about them. So secondary volume is spoken about a lot. But it actually is only available to a few companies, and then we get IPOs. I mean, we had Chime, we had Figma. We're getting IPOs back. They're not a ton of them yet, but we are getting them and we need more of them. So whatever you think of the IPO process. I know if you're reading Bill Gurley, you hate it. We just we need more IPOs. Whether they're direct listings or not, like that doesn't matter. We need more IPOs to go public. So thank you to Figma and I hope a couple more companies do this this year. This is a chart that shows getting from seed to A. How many companies go from seed to A and at what time period. So as an explanation, you could say that let's take a random quarter in 2020. If you look at, say, people who raised their seed round in the second quarter of 2020, and then two years later. So eight quarters from then, how many of them had gotten to Series A? The number was nearly forty percent. That is really fast. That's a lot of companies going from seed to A really quickly. That's a bubble. It is not sustainable. So in recent quarters, call it In 2022, for instance. That same percentage of companies that got from seed to A in two years or less was more like fifteen percent. So from forty to fifteen, big, big, big, big drop. What we're seeing right now is that companies that raised their seed rounds in 2024, are doing slightly better at graduating to Series A a little bit faster. So it does seem as though the worst of this is behind us and we're starting to ramp up a little bit more towards. What I would call a normal graduation rate. Which is probably something like twenty-five percent or so, twenty-five to thirty at most. So I'm actually a little bit optimistic that this data is showing people are getting from seed to A a little bit faster. But there's still a ton of people who raised seed in 2022 that are still alive. That haven't gone anywhere yet. So what happens to those companies, I think, is an open question.

Pablo Srugo (00:54:54):
I'm really curious to see how this develops like that twenty percent in Q2. So companies that raised Q2 2023, two years later. Now we're at twenty percent have gone in A up from fifteen percent the quarter prior. So that's definitely trending the right way. The other thing I'm curious to see and I don't know if you haven't updated or maybe we'd save for next quarter but the bridge results, right? Which were atrocious and I'm sure it's still. They can't change that fast in a quarter but I really have this deep-seated belief. Again, looking at that stuff in terms of what it takes to raise an A of, whether that's gonna somewhat normalize. We're raising a bridge. I think the fact, like you said it. If you have to raise a bridge, you're already in this lower probability state. So I think that's probably just gonna be true, but the gap between no bridge and bridge is so big. And I just have to imagine that. Anyways, I wonder and hope that it will narrow, but curious to see if that shows up.

Peter Walker (00:55:52):
The thing about that, man, and I'm with you. I think it will eventually start to narrow is. Again, that is a part of the market that's driven as much by investors as it is by founders, in terms of their needs, right? So you might bridge a company for the express reason of having better marks to go and show your LPs when you go and fundraise. And so that might be the primary reason you did it. Even if you're like, I know this founder isn't probably going to get there. So, there's a lot we didn't, in this session talk as much about VCs. But for the founders out there. However nervous and anxiety ridden you are about this market, just know that your VCs are equally anxiety ridden. Unless they work at Andreessen or Sequoia, because their fundraising process is super hard right now.

Pablo Srugo (00:56:38):
Cool, man. Well, listen, let's stop it there. Thank you for taking us through all of that.

Peter Walker (00:56:44):
Absolutely.

Pablo Srugo (00:56:45):
Some excellent data and some great observations, man. Appreciate it.

Peter Walker (00:56:49):
Yeah, appreciate you Pablo. Talk soon.

Pablo Srugo (00:56:55):
85% of people who listen to the show just started listening to it this year. You're probably one of those people. In fact, the odds are 85%. Guess what? You need to go back because there are over 100 other episodes that you need to check out that are just as good, if not better, than this one. Don't miss out.