Of those companies we meet, less than 4% make it through our annual funnel process. Most of the founders we meet are smart, committed, and in business for the right reasons.

The same is true of the 96% that do not make it into our investment process. With these rejections, we have noticed a familiar pattern among companies aiming for Series A, especially those still fine-tuning the details.

Stage 1: the seed

Founders are great at presenting a captivating story. They know how to raise $1 to $2 million in seed funding early based on the reputation of a strong team, clear ideas, and early traction (some with $20–50K in MRR – Monthly Recurring Revenue).

These companies have early-adopter customers on board, typically one to three products with traction, and a story that resonates with their target audience. But at this stage, most haven’t quite reached the level of maturity Series A investors look for. They’re worth keeping an eye on – the fundamentals are solid – but it’s often too early for us to engage. A little more experience, consistency, or evidence of repeatable growth is usually needed before we can move forward.

Stage 2: spending phase

When new companies secure more capital, they tend to scale their R&D teams aggressively. Sales and marketing budgets grow, and ad spend ramps up significantly.

Such founders assume having $2 million in new funds means they can sustain a $100,000 per month burn rate for the next two years. Seed investors often support such aggressive spending (VC firms following the T2D3 model), because it could signal unicorn status.

The downside is that growth rarely arrives as quickly as planned, while expenses remain high. As a result, the burn rate often becomes much higher than expected at this stage.

Stage 3: high burn rate

Sometimes, the market moves slower than expected. CAC is higher, sales cycles are longer, and product fit requires more iteration – costing the company significantly more in R&D and marketing. Revenue might rise, but nowhere near enough to justify the spending schedule.

As a result, revenue grows slower than planned, while expenses remain high. This leads to a burn rate that is significantly higher than expected at this stage, and the metrics no longer align with the growth story investors expect to see at Series A.

Stage 4: a need for a new round

With expenses at a higher level that reflect aggressive growth, but revenue that won’t quite catch up, a new round of funding needs to happen earlier than anticipated. Founders come to the market needing capital quickly – not as part of a long-term strategy, but simply to stay afloat.

The problem is that they will come to the table with less than $100,000 in ARR (Annual Recurring Revenue), far below the planned $300,000 MRR. They often lack a repeatable customer acquisition process and proven unit economics – two things Series A investors expect. The team may still be strong, but the fundamentals aren’t quite where they should be.

Despite these underwhelming metrics, it is common to find founders seeking $10 million in funding at $100 million valuations. They need the capital and want to avoid heavy dilution, while still believing in the billion-dollar potential of their business – often trying to make the case that a $10 million investment will get them to a $1 billion valuation in just a few years.

Optimism, ambition, and passion are important qualities in any founder. But at Series A, it’s not just about potential – we’re looking for clear signals that the business engine is working and ready to scale. What matters is a balance of traction and valuation, not a wide gap between the two.

Stage 5: initial VC discussions

Many companies at this stage will pitch to a hundred or more VCs. Their pitch decks are often impressive and well-crafted, but the first filter is always the same:

• What is the revenue?
• What is the valuation?

More than half of these discussions end quickly when VCs see a company with $1–2 million in ARR and a $100 million valuation. The numbers just don’t add up. This isn’t a rejection of the team or their vision – just a reflection of the mismatch between what’s being asked and what’s demonstrated on paper.

Stage 6: cost cutting to reset

There comes a time when founders pull back – usually after multiple VC rejections. Teams shrink, marketing and sales budgets are cut, and the burn rate drops from $150,000 per month to something much more sustainable – often $10,000 or $15,000. While this extends the runway and gives the company time to focus, it also slows growth to around 10–15% annually.

The growth engine that looked so promising in the beginning starts to lose steam. Without strong momentum, investors see limited upside. The company may become lean and stable, but at this point, it is no longer compelling for a Series A investment.

Stage 7: zombie mode

A company might stagnate. It isn’t dead, but it also isn’t really growing. That’s when it becomes a “zombie.”

These companies may continue to operate for another 4–5 years, with founders seeking new traction or exploring pivots, but the market is no longer as receptive and investors have moved on.

As a fund, we seek companies aiming for significant outcomes – our goal is to find a unicorn, not a zombie. In our eyes, the team hasn’t failed; it’s just that the growth thesis broke without timely repair.

What the 4% get right

Now that you have a better idea of the paths most companies take, let’s focus on what the top 4% get right. The difference often comes down to how they pace growth.

The companies that stand out understand what Series A requires and structure themselves accordingly – not just through spending, but with operational clarity and sustainability. What do they get right?

• Pacing growth intentionally by expanding in line with each stage before moving forward
• Proving unit economics early and confirming CAC, LTV, and churn metrics
• Building repeatable systems in R&D, sales, and marketing
• Understanding investor expectations with realistic valuations and growth targets
• Prioritising clarity over perfection by demonstrating what is and isn’t working

At Zubr Capital, we meet companies at every stage of this journey. When we see the right signs of smart growth, efficient traction, and repeatable system successes, we bet with full commitment. These 4% of companies are the ones that earn a Series A and receive full support from our systems. They are the ones who make up our investment portfolio.

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