As data nerds, we’re fans of Pitchbook’s data. When they put out data we feel are relevant to initial-scale SaaS Founders, we like to dig in and surface the insights we find interesting. This time, it’s all about the shift in venture capital to mega deals and the associated impact on early-stage venture capital financings.tl;dr At large, Venture Capital is in a viral funding loop of more money, larger deals, larger required exits (primarily via IPO) and a de-prioritization of the early-stage. If this results in success for VCs and their LPs, this loop will continue and venture capital will mint many more billionaires and pad the pockets of investors and some extremely small % of Founders. If the IPO market dries up, we can expect a significant retraction, which could reshape the landscape altogether. The highlights:
- Venture capital fundraising is in beast mode. VCs are flush with cash from LPs thanks to record fundraising over the last 5 years. And, this is accelerating!
- At large, venture capital as an asset class is outperforming. This has largely been driven by an active and rewarding IPO market across consumer and SaaS, which is driving further capital inflow.
- “Mega-deals” are dominating the landscape. You’ve seen the headlines; the numbers are huge. VC’s have regularly conducted these deals leading up to IPOs, which has proven to be a rewarding strategy for those funds large enough to pull it off. So, expect more of this.
- Overall activity is dropping: With larger deployments the name of the game, the early-stage venture capital financing segment (pre-series C) is feeling the blow. The most dramatic impact is at the angel/seed stage, where the rounds are larger but deal activity is dropping.
These charts (thanks Pitchbook) paint the picture:
#1 Heed the yellow line. Fewer angel/seed VC deals are being done.
VCs are waiting longer to invest at the early-stage, in effect, making bigger bets early on in the most de-risked opportunities. So, the traction requirements are higher than they’ve ever been with more traditional late stage SaaS metrics being applied to and expected of early-stage companies.
#2 Ladies and gents — We have a HOCKEY STICK!
Again, that yellow line (angel & seed) just isn’t doing much for the vast majority of seed-stage Founders. It’s really all about the blue (late VC – series C and beyond). Crimson (early VC – A&B) is trying not to get left behind, making the case that it can attract venture capital as well.So, what’s going on in the VC market?
#3 Look out below it’s…Megatron (er… deal)
Finally, the yellow line is showing us something. Unfortunately, it’s not longer representing angel & seed as the Mega-deal has straight up eaten it, and it’s hungry for more.But Why?
#4 The IPO promise is playing out
It’s never been so good to be a tech IPO, at least not in the last 20 years. We know how short-lived that was. This is not that, but it will be interesting to see how it plays out. I imagine all VCs working to raise large, late stage funds have this chart in their deck.These IPOs mean?
#5 More capital flow to the venture capital asset class for the Viral Funding Loop
Viral Funding Loop
The numbers are staggering with venture capital set to have brought in $1 trillion dollars in investor capital over the past 4 years. I’m not sure what to say about this other than that’s a lot of money and maybe these VC’s should team up, work a bit harder and take FAANG private. So, there you have it. It’s probably pretty good to be a late stage VC right now. For early-stage Founders seeking venture capital, the picture is a bit more bleak. On a positive note, you have other options! We support initial-scale SaaS Founders (seed in VC speak) and our check sizes and approach are right sized for those not looking to get caught up in the current VC cycle. Drop me a line with your thoughts/questions. firstname.lastname@example.org or get started here