The round that did not close

A company ran a Series A process with four months of runway, got a term sheet, lost it in diligence, and had five weeks left.

This is an anonymised composite, not a report about a named company. The situation and numbers are typical rather than reported.

Where they were

A B2B SaaS at $95k MRR growing about 8% monthly. Sixteen employees, burning $180k a month, and roughly four months of cash when they started raising.

The problem

They needed a Series A. Their metrics looked strong on the headline numbers and three funds engaged quickly.

The decision

When to start raising, and how much diligence to do on their own numbers first.

What was on the table

• Start now with four months of runway
  For: Growth was strong and the market was warm. Waiting risked the window closing.
  Against: Four months is not enough for a process that typically takes three to six, and leaves no room for one to fail.
• Cut burn first, then raise from a longer runway
  For: Removes the deadline, which is the only real leverage a founder has.
  Against: Cutting means slowing growth, and growth was the story.
• Raise a bridge from existing investors first
  For: Buys time to run the A properly.
  Against: Signals weakness, and dilutes at a lower price.

What they chose

They started immediately. Six weeks in they had a term sheet at a valuation they were happy with, and stopped talking to the other two funds to focus on it.

What happened

Diligence found that about 40% of revenue came from three customers, and that one of them — 18% of MRR alone — was on a contract expiring in five months with no renewal conversation started. The fund did not walk over concentration itself; they walked because the founders had not flagged it, which made them ask what else had not been flagged.

With five weeks of runway the founders cut to nine people, personally closed the renewal, and raised a small bridge from an existing investor at a flat valuation. They raised a proper A eleven months later at roughly the same price, having lost a year.

What killed the round was not the concentration. Plenty of companies raise with concentrated revenue. It was disclosing it late, and having stopped talking to the alternatives.

What transfers

• Run diligence on yourself before anyone else does. The problems are findable, and finding them first turns a surprise into context.
• Never stop talking to the other funds until the money is in the bank. Losing your alternatives is what turns a setback into an emergency.
• Start raising with enough runway that you can walk away. A deadline the other side can see is the weakest possible position.
• Concentration is a manageable fact. Concealed concentration is a question about the founders, and that is much harder to answer.

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