How to beat the heartbreak of ‘Series A Crunch’

Many start-ups grind to a halt once their initial seed funding runs out, and an Israeli-organized project is offering a chance to reach the ‘next level’

A man explains the application of smart mobile phones during a recent start-up event. (photo credit: Kobi Gideon/Flash90)
A man explains the application of smart mobile phones during a recent start-up event. (photo credit: Kobi Gideon/Flash90)

An investment in the right start-up can net a backer lots of money, but until a company turns an investor into a rich capitalist, it’s essentially “on welfare,” living off the largesse and grace of the investors who see the start-ups they invest in as having promise. It’s a model that works, as the investors in companies like Waze and Wix, both of which had top-flight exits in 2013, know. Entrepreneurs with a big idea all seek to duplicate that success, and there are many facilities — incubators, accelerators, and tech centers — ready to help them.

But there’s a problem: The infrastructure and ecosystem for start-ups may have grown, but the available pool of money to fund those companies has not kept up. And while angels, family members, and private investors may be willing to part with modest sums to help a good idea get off the ground, there comes a point where that seed money runs out, and more is needed.

At that point, according to Levi Shapiro, a partner at the JIMMI (Japan-Israel Mobile, Media and IT) Fund, start-ups must face up to a growing hazard – the “Series A Crunch,” a dearth of available funding for companies to continue developing their idea or product. The name was coined, said Shapiro, by consulting firms, including PriceWaterhouse and CB Insights, which did extensive research on the issue.

Shapiro, with help from crowd-funding platform OurCrowd, wants to help start-ups avoid the “heartbreak”of Series A Crunch, and to that end is organizing the Global Startup Pitch, a contest open to digital start-ups from around the world.

“Ironically, the number of venture firms making Series A and later stage investments in technology startups is actually declining, with 61% of U.S. early-stage companies unable to raise follow-on funding of any kind,” Shapiro added. “Early Stage companies need customers and they need funding, so we have created a funding pitch contest as a way to expose worthy startups to both.”

In a way, say many entrepreneurs, the heartbreak of Series A Crunch is much worse than they would have experienced than if they had not received any funding at all. “If I hadn’t gotten initial funding, I wouldn’t have gotten emotionally involved in the project,” said Shmuel Schwartz, an entrepreneur who had to halt work on a mobile app because his company ran out of money. “I had a very hard time walking away from it, but there was no choice.”

Levi Shapiro (Photo credit: Courtesy)
Levi Shapiro (Photo credit: Courtesy)

Companies participating in the Pitch will pitch their product/ideas to a panel of top figures in the digital media world, including David Roman (CMO of Lenovo), Greg Stuart (Global CEO of the Mobile Marketing Association), Jane Randel (SVP Communications & Brand Services, Kate Spade), Gavin Marshall (Head of Digital Innovation, SAB Miller), Carl Fremont (Chief Digital Officer, MEC), Stephanie Hospital (EVP, Orange), and others.

Winners will receive more than $20,000 in free professional services (legal, accounting, UX, business development, b2b marketing, etc), plus the real-time feedback of executives from top global brands like Lenovo, Citibank, AT&T, Michelin, IBM, eBay, AOL, WPP, Orange, Blizzard, SAB Miller, and others. Most important, said Shapiro, they will be in the running for a Series A funding round, to be arranged by OurCrowd. Any company with an existing product/service and that has raised less than $1.5 million to date is welcome to apply, said Shapiro.

“Israel is a natural home for a digital media conference and Startup Pitch Contest,” said Shapiro. “The world’s number two start-up ecosystem has seen acquisitions in the last few months by Google, Apple and Facebook. In fact, VC-backed exits reached a record high last year of $4.2 billion, with average exits rising to $83 million.”

“The Marketing & Ad:Tech Israel Conference brings together the world’s top brands, agencies and publishers to explore the future of marketing,” says Jon Medved, Founder and Managing Partner of OurCrowd, who will award the prize. “What better way to peer into the future of digital marketing than to invest in the most innovative ideas?”

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