CBinsights recently published a study, which has a few really salient points about the realities of startup equity funding.
First, though Silicon Valley and the New York metro area are the United States’ two largest VC hubs, the Boston metro area has the largest percentage of seed-funded companies receiving follow-on investments. This cohort of companies in the Boston area achieved a 68 percent investment rate during their startup equity funding. What does this mean for New England and, more specifically, Maine? That after receiving initial seed capital, it is more likely that these companies receive crucial follow-on capital to keep themselves running in the Boston area than anywhere else.
As you start your plan for your first capital raise, it’s worth noting that this study found the average time between first-round and second-round capital raise was 22 months. This is a relatively long time between investments, meaning seed companies need to make sure they raise enough money during their initial investment to allow themselves to make the necessary development to secure the next round of capital. Once you raise your seed capital, manage your cash burn carefully, there will most likely be a decent wait time between investments.
The study also highlighted that the average initial seed capital raised across the United States was $750,000, which is very similar to Maine. But after the seed round, follow-on investments in other parts of the country were much larger, averaging around $4.5 million. Though equity financing events of that size have happened in Maine, they are rare. This raises the question, as an ecosystem, what can we do to realize larger equity capital financing in Maine?