Posted by Early Growth
July 7, 2017 | 3-minute read (549 words)
It's hard to believe that 2017 is halfway over. We'd like to take a look back at what's happened over the first half of the year in the LA VC ecosystem.
Before we focus on LA specifically, it's best to look at what's happening on a national level. Pitchbook produces charts that represent the gold standard for the industry and give us good insights into macro VC trends. According to Pitchbook, the two major trends in the US are that the volume of deals both at the seed and growth stages is declining, while the number of new funds raised and total amounts raised by funds is growing.
In LA specifically, there are a few interesting trends
that loosely mirror what's going on nationally. Based on 2017 projections, the number of LA seed deals is down significantly (approx. -50%) compared to the 2014 peak of 312 seed financings. Growth stage VC deals are still holding, but the valuations of these companies are declining. The good news is that M&A activity and the total amount of VC dollars raised by the funds themselves is still quite healthy.
So what does this mean if you're an LA company? First and foremost, the core idea that great companies will attract money regardless of fundraising climate is still
unchanged (Tesla's Christmas Day 08' financing
is one of the best examples of this.) Secondly, with the volume of seed financings down, it's imperative that as a Founder you set goals and metrics to achieve milestones to secure money. Two to three years ago, seed investors were handing out money aggressively, but now the metrics and traction required by an investor are elevated. Nowadays, Angel Investors require Seed stage metrics, and a Seed company has to look the way a Series A company looked a few years back.
If you're a later stage growth company, it's imperative to focus on growing revenue and sales, or if not applicable, other forms of traction. This shows the investor that their cash is used to fuel the fire, not to keep the dying flame alive. If you're unable to hit milestones before your next growth round, consider using alternative financings or debt financings to extend the runway of the company and increase your valuation in this current environment that's supporting lower valuations.
Another piece of good news is that recently, larger seed/growth funds have closed in LA. Most of the hard data referenced in this article has focused on Q1, but there are five major funds that are either brand new or a new fund of an existing fund. In the pure seed fund category, Embark
have recently announced new funds. On the larger side is Fifth Wall's 212M fund
, which focuses on LA's real estate tech companies, Fertitta Captial's 500M Growth Fund
, focused on the intersection of technology and media/entertainment, and most recently, Upfront Ventures'
massive $400M fund aimed at Seed, Series A, and B companies. Over the last two quarters, these five funds have raised over $1B of cash to put to work for LA companies. This is a great step for LA and something we are excited to see.
If you are in the fundraising process, hit up the fundraising category of our blog for more information.