April 22, 2024

222. Seed Crust: The Story So Far

222. Seed Crust: The Story So Far
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Season 4

Text your thoughts directly to Rich.

Join us for a live webinar about the state of the Seed market on May 2 @ 11:00 AM MT (1:00 PM ET // 10:00 AM PT)
https://stvc.us/seedcrust

The market conditions driving Seed have been building for the past few years. More Seed funds kept Seed isolated from the later stage problems... until now.

About AVL Growth Partners
AVL Growth Partners, founded in 2009, is the leading fractional Finance and Accounting firm supporting organizations in pivoting from growth to scale. AVL brings an experienced team of CFOs, Controllers, and Accountants to your organization, delivering transparent, strategic actions for short and long-term success. Transform your financial approach affordably with AVL, supporting companies coast to coast - get to know AVL Growth Partners at avlgrowth.com. (Sponsored)

About SpringTime Ventures
SpringTime Ventures seeds high-growth startups in healthcare, fintech & insurtech, and logistics & supply chain. We look for founders with domain expertise, forging a path with a truly transformative technology. We only invest in software-based businesses in the USA. We bring a people-focused approach, work quickly, and reach conviction independently. Our initial check size is $600k. You can learn more about us and our approach.     

Transcript
WEBVTT

00:00:01.000 --> 00:00:08.654
This is Rich Maloy with SpringTime Ventures, bringing you the VC Minute, quick advice to help startup founders fundraise better.

00:00:09.407 --> 00:00:12.917
I want to spend this week sharing with you my latest market report.

00:00:13.417 --> 00:00:19.448
If you're listening to this before May 2nd, you can sign up for the webinar where I will present the full report.

00:00:19.948 --> 00:00:27.178
And if it's after May 2nd, still follow this link and that will give you access to the full report and the webinar, if you want to see that too.

00:00:27.678 --> 00:00:36.432
You can go to stvc.us/seedcrust Why seed crust?

00:00:36.851 --> 00:00:40.031
That is my perspective on the Seed market right now.

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There's this crust over top of the seed market or all the startups are circling around beneath it.

00:00:46.758 --> 00:00:53.387
So many startups struggle to break through that crust, to hit Series A and beyond.

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I'm going to cover the market forces that are driving this and how this all came about.

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So stick with me this week, and then send them to join us.

00:01:01.798 --> 00:01:04.918
Live on May 2nd at 11:00 AM mountain time.

00:01:05.518 --> 00:01:15.834
That's stvc.us/seedcrust But first I want to thank AVL Growth Partners for supporting the VC minute.

00:01:16.135 --> 00:01:22.344
AVL Growth provides fractional finance and accounting services to companies pivoting from growth to scale.

00:01:22.844 --> 00:01:24.644
Ready to elevate your financial game?

00:01:24.944 --> 00:01:26.325
Ready to elevate your company?

00:01:26.728 --> 00:01:28.769
Ready to move from growth to scale?

00:01:29.436 --> 00:01:34.805
Head to AVLgrowth.com and explore how they can be pivotal to your growth.

00:01:35.871 --> 00:01:39.591
The first thing that we should do is rewind and talk about the story so far.

00:01:40.091 --> 00:01:44.132
It's December of 2021 and the market has been teetering on the edge.

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We were just starting to invest out of our second fund, and I was talking with one of the founders that we were about to invest in.

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He asked what our opinion was about what was coming down the line for the market.

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I said to him then that the thing that I was watching were the late stage startups.

00:02:01.621 --> 00:02:05.882
The thing that I was worried about is thinking through the VC Treadmill.

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You raise your Seed, you raise your Seed 2, you raise your Series A, your B, your C, your D, eventually you go public or you get acquired.

00:02:14.622 --> 00:02:19.662
If there are no exits, then there's a backlog and that backlog starts to build through the system.

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In Q1 2022, I released a report called"Pig in the Pipe" because we saw the first signs of this in the late stage at the end of Q1, 2022.

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Seed pre money values were way up.

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Early stage pre money values were way up, that's A and B.

00:02:36.556 --> 00:02:38.984
And what ticked down pretty dramatically?

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Late stage VC, C and D values ticked down very significantly.

00:02:45.407 --> 00:02:56.454
What I was worried about was that there was so much money circling around in the Seed phase that Seed would continue to grow and build and invest like nothing had ever happened.

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Only to hit the pig in the pipe at the Series A.

00:03:00.033 --> 00:03:05.457
Because the Series A startups can't raise their Series B because the B's can't raise their C's and the C's can't raise their D's.

00:03:05.657 --> 00:03:07.997
And it all works its way back through the pipe.

00:03:08.747 --> 00:03:17.716
That started to happen in early 2022 I was already talking to startups about how they should be adjusting their mindset for the new market.

00:03:18.216 --> 00:03:22.022
In a hot market, funds invest in more companies, faster.

00:03:22.393 --> 00:03:30.138
But when markets cool off funds pull on two levers, they reduce the number of investments that they make and they slow down the pace of their investing.

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What I was worried about by late 2022 was what I was calling"HOT or NOT." Your round was either hot or it was not.

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And everybody was going to try to cram into the hottest rounds.

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To those founders, it would feel like 2021 all over again.

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But to everybody else that are going to struggle to raise and they'll be pulling in dribs and drabs and they'll be facing down rounds or VC favorable terms.

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And all of this has come to pass.