Why Fewer Companies Are Successfully Raising Series A Rounds. Update: Data from TechCrunch supports the post below. CrunchBase has seen a 33% increase in the number of seeds reported and a 9.6% drop in the number of series A's reported. In 2008 the ratio of seeds/series A reported were 1:1, in 2011 the ratio was ~2:1 -------------------------- One big shift in the startup scene over the last 18 months is the sheer volume of startups getting started and seed funded.
If we use Y-Combinator as a proxy for the broader ecosystem (which is probably directionally correct, although YC growth may be overall higher due to increased branding as well as e.g. Start Fund and other activities) then we see the following: At the same time, the percentage of startups closing seed rounds seems reasonably static to me (it may even be up). This has led to a crunch at the series A level, where more and more startups are unable to successfully raise a series A. Reasons for the Series A Crunch1. 2. All the VCs I know tell me times are getting more and more busy for them. Six Slides. The CEO of one of our portfolio companies is working on a fundraising deck and asked me for some tips. I gave him my favorite, "keep it to six slides. " He ended up with thirteen which I see as a moral victory. The founder and CEO of another of our portfolio companies is wrapping up a large round and he showed me his pitch deck. Guess what? Six slides.
Like many things in life, less is more in fundraising slides. If you succeed in inspiring an investor, there will always be an opportunity to do a deep dive in a follow up meeting. I learned this lesson when Brad and I starting raising USV 2004 in the fall of 2003. But the advisor won that argument. So when you sit down and build your pitch deck, think of six slides that will inspire and leave something for the imagination. What I learned from raising venture capital. Takin' VC Money (Money Cash IPO's) by Smixx Forewarning Be forewarned, this post is long. You can tl;dr it by reading the section titles. It's long because I'm compressing the last four months into one post. I don't normally do that, but I didn't want to influence my funding by blogging about it in the middle of it. And historically I've been bad at doing serial posts, so here you go...
I'm new at this. I recently raised venture capital for the first time. Background. DuckDuckGo raised a series A round from Union Square Ventures and a handful of awesome angel investors. The funding process is not to be taken lightly. Even though our round went relatively smoothly, it was still a massive time sink. This reality is especially troublesome for two inter-connected reasons. Save up good news for the middle of the process. We did not do this, but it ended up working out that way anyway and so I saw the value in it first hand. A similar (also unplanned thing) happened when selling my last business. Brutal Honesty. There are a lot of different kinds of people in this world. I’ve found that I get along best with the ones that are brutally honest. Earlier this evening I interviewed Vinod Khosla at the jam-packed Startup Weekend Seattle event. We had a long talk – nearly an hour in total, which is a lot longer than most interviews I do and allowed us to take a deep dive on a number of issues important to Vinod.
There’s good coverage of the event at Xconomy, GeekWire (again) and AndrewDumont.me. What strikes me most about the man aren’t his views on technology or venture capital, but his communication style. During the pre-interview prep I carefully brought up an issue that I’ve heard from a number of people – that Vinod is somewhat “difficult.” So I asked Vinod about it, and carefully watched his reaction. He told me stories, and then repeated them on stage, about a variety of entrepreneurs he’s been “brutally honest” with.
VC’s give lots of reasons for turning down a startup, he told me. Like this: The State Of Venture Capital And The Internet.
Fred Wilson Explains Why Most New Angel Investors Are About To Get A Seriously Rude Awakening. An article in the Wall Street Journal about a "cash crunch" for startups has thrown the tech world into a mini-panic. Fred Wilson of Union Square Venture partners has the smartest take we've read so far, which is that the only reason there's a "crunch" is that there are now just a mind-boggling number of startups competing for a finite number of users and a finite amount of cash.
Good, differentiated startups are still able to raise all the money they want, Fred says. But he and his partners are now so deluged with business plans that he feels like the "Annie" casting director who spends all day fending off mothers and red-haired daughters at casting calls only to arrive home and have yet another red-haired kid pop out of a bush and start singing "Tomorrow! " (Our analogy, not Fred's). And of course you don't need to be a genius to know how this will end. It will end the same way it always does: In a bust. In other words, it's the same as it ever was.
Startup Valuations: The Venture Capital Method | Angel Investor - Bill Payne & Associates. We recently started a series of posts on establishing the pre-money valuation of pre-revenue startup companies for purposes of investment by seed and startup investors. The Venture Capital Method (VC Method) was first described by Professor Bill Sahlman at Harvard Business School in 1987 in a case study and has been revised since. It is one of the useful methods for establishing the pre-money valuation of pre-revenue startup ventures. The concept is simply…since: Return on Investment (ROI) = Terminal (or Harvest) Value ÷ Post-money Valuation (in the case of one investment round, no subsequent investment and therefore no dilution) Then: Post-money Valuation = Terminal Value ÷ Anticipated ROI So, let’s address each of these: Terminal Value is the anticipated selling price (or investor harvest value) for the company at some point down the road; let’s assume 5-8 years after investment.
Anticipated ROI: Angel investing is risky business. Post-money Valuation = $ 2.125 million. Stepping Back From The Angel Bubble. [ Photo courtesy of Fir0002/Flagstaffotos via Creative Commons License ]By Jason CalacanisEveryone is talking about the startup bubble popping today thanks to a Wall Street Journal story that Fred Wilson responded to. You can read about all this on the awesome Techmeme aggregator here: No one can call a top to the market, but VC Mark Suster did last year, and I was right there with them letting folks know that I'm taking a "pause" on angel investing right now. Why am I taking a pause and what do I think of this market? A couple of reasons, and some related observations: 1. Decreasing dealflow: I'm not really on a pause, I've done a couple of deals, but I simply have too much deal flow. 2.
SecondMarket and AngelList are taking over the entire funding process. 3. 4. 5. 6. 7. We don't know how the super-angel space is going to play out, but I think it could collapse on itself because you don't have enough staff to service all your investments. What We Are Seeing. The Wall Street Journal has a story out today that says "Web Startups Hit Cash Crunch. " There has been a fair bit of reaction in the tech blogs and I thought I'd toss into the discussion some things we are seeing: 1) There are so many startups out there raising money.
I don't think this is a bad thing. It's a good thing. Entrepreneurship is in vogue. Innovators are innovating. 2) There are a lot of "me too" investments out there. 3) VCs are having a tough time raising money. 4) Angels may be topping out, at least temporarily. 5) The internet investing market is transitioning. So, is there a "cash crunch" for web startups?
That's a good reason to take money from a firm that stands behind its portfolio companies. A VC.