The Series A crunch – is it for real? Is it actually happening? Folks in the innovation ecosystem have had a spectrum of views on it over the past couple years. Some have felt it is for real, while others have opined that it is a myth. Add Fenwick and West’s latest survey to the discussion – the law firm released some analysis last week that suggests based on the numbers that the Series A bottleneck has gotten tighter over the past year or so. Data from the survey shows how a much larger portion of seed funded companies from 2011 as *not* being able to raise money over 2012, when compared to the portion of 2010 seed funded companies that were unable to raise money in 2011.

Let’s look at this from a signaling perspective. Traditionally, seed money was raised from angels and super-angels, and VCs came in at the Series A and later. In recent times, some VC firms have taken the approach of doling out small amounts of money to a large number of startups every year, so as to learn first-hand about companies’ progress, and of later investing big dollars in a few chosen companies while dropping the others from their portfolio. As the larger funds continue to do this, more and more VCs are being pushed to come in at the seed to have a seat at the table. At the same time, this is creating strong negative signals around companies that were funded by a VC at seed that which didn’t receive a Series A investment from the same VC. Earlier, since Angels didn’t follow in subsequent rounds, this negative signal was absent, thereby allowing startups a much more level playing field at the Series A.

Should entrepreneurs worry about the Series A crunch? Not really. The odds for startup success aren’t high, but the typical entrepreneur does (and should) believe that he/she can beat the odds, and more money early on can only help! What is actually more important is that the fundraising and execution be done with discipline – raise enough money to get the startup to a milestone or inflection point that helps you raise the next round. Surround yourself with knowledgeable and honest advisors, both from your investor group and outside. If the idea holds water, the money should eventually come, signaling or no signaling (and this is where operating lean will help you remain solvent long enough to raise the money). If it doesn’t, then it will be a learning experience, and your next startup will be that much better for it!