Feb. 13, 2024

179. Follow Ons Part 2: Everything Takes Longer

179. Follow Ons Part 2: Everything Takes Longer
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Season 4

Text your thoughts directly to Rich.

The time between startup fundraises has grown significantly. Additionally, the time between venture fund vintages has also grown, resulting in a slowdown of capital deployment. All while venture funds buoy the healthy companies in their portfolio with follow-on capital. 

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Continuing with the follow on discussion.

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The next important piece of data is that time between fundraises for startups is growing.

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Especially noticeable is the time from Seed to Series A.

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It used to be that you would raise a Seed round and then you would raise a Series A somewhere in 18, maybe up to 24 months.

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According to Carta the average time from a price to seed to a series a right now is 28 months, and that trend has been increasing, I could see that number realistically going up to 30 months.

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And in your last fundraise, you may not have planned for this.

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You should be acutely aware of this lengthening of the seed phase at this point, but in case you weren't consider yourself informed that 1) it's going to take you longer to run a fundraising process, and 2) you're expected to make that capital last longer.

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And if that wasn't enough doom and gloom for you, you know, what's also growing?

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The time between venture fund vintages.

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Which means that venture funds are not raising as quickly as they used to, which means that they are deploying at a slower pace.

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This is especially true for seed funds and for emerging managers.

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The slow down of the deployment of capital is something I've been talking about for the last two years.

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And it has really come home to roost right now.

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The last piece that I have for you today is purely anecdotal however, it's something that we're seeing out in the market.

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Seed funds are feeling the pain of markdowns, shut downs, getting crammed down, while they're once high-flying investments are going to zero.

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The way that I perceive this is the psychological effect is like, getting slapped in the face or punched in the gut.

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What happens?

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You have a fight or flight reaction to that! The flight piece is a flight to quality where venture funds are looking for additional validation.

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They are raising their own bar for what they're going to invest in.

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The fight piece of this, is the fight the market.

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And this is where investors are buoying their own portfolio with additional follow on capital.

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And look there's a part of this that is absolutely genuine.

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These are the companies that are doing well.

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They're the companies that you want to see move forward, and you want to see them turn over another card, and you want to see them continuing with the good work they're doing.

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This is part of the job of a venture fund and especially so for a seed fund.

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However, when you bring all these pieces together, there is something that I'm worried about coming in the market.

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And we'll talk about that tomorrow.